An additional 30,000 construction workers will be required to meet the State's housing and climate targets, the Irish Fiscal Advisory Council (Ifac) has said.
In a new report, the budgetary watchdog also warns that the Government’s planned increase in capital spending could aggravate capacity pressures in the construction sector, potentially driving up costs.
Given the State’s poor track record in preventing cost overruns on big capital projects, future investment will have to be carefully planned and managed, it said.
With its revised National Development Plan (NDP), the Government is planning to ramp up public spending on infrastructure over the next five years, up to 5.4 per cent of national income by 2025, which equates to €15 billion. This is above the typical capital spending rates seen in other countries.
The council said that while the increase should help to meet climate change and housing goals, it will also place significant capacity pressure “on an already tight construction sector”.
It estimated that about 180,000 workers would be required in construction to achieve the Government’s planned increases.
This is 30,000 above the pre-pandemic level of employment in the sector.
“Getting there could be difficult and migration flows may not boost workers as in the past,” said Ifac.
The previous house-building boom in the 2000s was facilitated by massive influx of foreign workers.
"It is also unclear whether migration flows can provide the same boost to labour supply as it did in the past," the council said, noting other countries have narrowed the wage gap with Ireland while costs here remain high.
It calculated that Ireland’s relative attractiveness had fallen by more than a third relative to the mid-2000s.
The additional public investment is also likely to have broader macroeconomic impacts: boosting growth and raising prices.
Upward pressure on costs driven by price inflation or wage increases due to material or labour shortages could limit the boost to economic activity, it said.
It could also result in higher investment costs for the Government or lower output for a given price, poorer value for money and possible spending overruns.
The council's chief economist Eddie Casey noted that Ireland had a poor track record in preventing substantial public investment cost overruns.
“ Ramping up public investment at the same time as there are shortfalls in construction workers could magnify these problems,” he said.
“ If Ireland is to avoid further overruns, and poor value-for-money outcomes in future, careful planning and management of public investment spending will be needed,” he said, noting the cost overruns associated with projects like the National Broadband Plan and the National Children’s Hospital.
The council’s report said that Ireland’s public investment has fluctuated over the past two decades.
The additional investment spending is to be funded in part by running higher deficits and comes at a time when Ireland’s debt ratio is already high and needs to be reduced to more prudent levels over time, it said.