Output to drop from €36bn to €20bn, conference told

THE GOVERNMENT should take advantage of the reduced price of land and greater competition in the construction sector and continue with its infrastructural projects in its National Development Plan, the managing director of John Sisk Son, Tom Costello, told a Dublin conference yesterday.

The Government could avail of the cheaper costs while also helping maintain the “world class” construction sector that has been developed in Ireland over the past decade or more. “The resource is there, use it or lose it,” he said.

Mr Costello told the conference, Ireland’s Future in a Global Economy, organised by the Society of Chartered Surveyors, that, when falling land prices are taken into account, the Government could over the coming years buy 40 per cent more road for the same price as 10 years ago.

He said Sisk, which will be 150-years-old next year and which is the largest construction company in Ireland, is looking to internationalise in search of new business. “There is a real opportunity to internationalise Irish construction,” he said. “It is important not to lose ambition.”

The sector will drop from output valued at €36 billion this year to €20 billion next year, but it was most important that the great resource of world class ability that had been built in the sector should not be allowed disappear.

“The skills are here now that were not here 10 years ago. I really worry that they may not be here 10 years from now.”

Mr Costello warned against companies bidding below costs for jobs. Below cost tendering “is a very dangerous place to be,” he said, and had caused great difficulties in Britain after its fall in construction activity. A race to the bottom would “wreck the industry,” he said.

Prof John FitzGerald of the Economic and Social Research Institute (ESRI) told the conference that the building sector had been allowed grow too large and had “squeezed out the rest of the economy”.

European monetary union had made it cheaper to borrow to buy property.

“The problem is we did not manage this. The Government should have managed this and the banking regulator certainly should have stepped in.”

It was a good thing that more homes were being built “but it got out of control,” he said.

“Fiscal policy matters. The Government has done the wrong thing pretty consistently . . . the philosophy was, if you have it, you spend it, and that was not the right philosophy.”

He said building had accounted for 14 per cent of gross domestic product in 2005 and 2006, the highest “of any country I’ve looked at”. It could now fall as low as 4 per cent. “It is no wonder we are in a recession,” he said.

He said the turning point in the adjustment would depend on the purchase price/rent price relationship. He thought there was still some way to go before the turning point was arrived at. “My suspicion is prices will come down too far, and then go back up.”

The Irish property bubble was well under way before the banking crisis came along, Prof FitzGerald said, but the banking crisis was beginning to impinge now.

He believed the exchequer could make a profit if it put money into the banks to recapitalise them. Ireland probably should follow what the UK had done in response to the banking crisis.

The budget was “not nearly tough enough,” Prof FitzGerald said. “Things are worse than expected and they probably didn’t do enough.”

He said the Irish tax base would have to be rebuilt. Rises in Government spending in recent years had been funded by property taxes and they in turn had been paid for with borrowed funds.

Prof FitzGerald said the ESRI was still predicting Ireland’s growth in the medium term would be above the European average.