Construction industry enjoys the good times
IRISH construction has entered into its fourth year of continuous growth and the good news is that growth will continue until 1999. Six years of significant continuous growth is an unaccustomed luxury for an industry which has suffered from more frequent peaks and troughs for many years.
In 1995 and 1996, growth was patchy. In 1997, growth will include all sectors of the industry. In 1995, the total volume of construction grew by 19 per cent, in 1996 by 10 per cent.
In 1997, we forecast a growth of 6 per cent overall. The most significant growth will be in civil engineering, which has had a mixed pattern in recent years despite the major road building programmes.
The most erratic growth and the most difficult to forecast has been housing. Driven by tax breaks and low interest rates, the construction of houses and apartments has grown year after year. Each year, we forecast that the pace of growth cannot continue unchecked. But, up till now, growth has continued a pace. We project continued growth in housing in 1997 but once again expect it to be at a lower rate - we may be proved wrong once again!
One of the immediate impacts of the continuing increase in the volume of construction has been the rise in prices.
The consumer price index has risen by one to 2 per cent and input costs of materials prices and trade union labour rates have meant similar low-cost increases. However tender levels - the price contractors charge their customers - tell a different story.
Tender levels are erratic from area to area and depend on the size of a contract and its timing. However, on average, tender levels - as measured by the PKS in index - rose by 8 per cent another 10 per cent in 1997.
Contractors rightly argue that their margins have not increased by these amounts but that the costs charged to them by sub-contractors have. This is largely true - although in a rising market any contractor who has not taken the opportunity to raise margins from the suicidal levels of some years ago should not be in business.
Further increases in volume in 1998 and 1999 are likely to lead to similar increases in tender prices.
The Construction Industry Federation (CIF) has pointed out that the growth of recent years has not yet brought us back to the volumes achieved in the 1980s. However, the decline in the industry in the early 1990s led to an outflow of skilled labour to the UK and Germany and a slowing down in recruitment to the industry.
Over the past 10 years, the structure of the Irish construction industry has changed radically. For many decades, Irish contractors recruited and trained their own operatives. A developed apprenticeship scheme fed a steady flow of skilled tradesmen to the industry. Irish-trained tradesmen were welcomed with open arms by UK contractors and set high standards of craftsmanship.
Apprentice training was taken over by AnCo - later FAS - at the same time as contractors divested themselves of skilled labour and moved to sub-contracting or labour-only sub-contracting. FAS apprentices found difficulty in obtaining the required work experience because of the dual factors of a decline in the industry and the move to subcontracting.
Today, with order books growing, the industry faces a major skilled labour shortage. In a growing industry, skilled labour is becoming scarcer and scarcer. The unions blame the CIF; the CIF blames FAS; and FAS blames everybody except itself.
At the builders' dinner in November, the Minister for Finance, Mr Quinn, himself an architect, made an impassioned appeal to the industry to sort out the apprentice problem. For everybody's sake, we hope the CIF, FAS and the unions can come together to achieve a workable solution to an acute problem.
The introduction by the Minister for Finance of multi-annual budgeting in the Budget is to be warmly welcomed. Against the reluctance of his officials to forecast more than a year ahead, the Minister has commenced a process that can only be helpful to the construction industry and any other industry planning for the future.
The budget projections for 1997, 1998 and 1999 show continued growth of public investment in construction fuelled by the EU structural funds. The industry can, therefore, plan investment in the sure knowledge of growth for the next three years. Investment in plant, capital and, more importantly, manpower is vital if the industry is to meet the challenges ahead.
Growth in volume has led to growth in employment not only in contracting but also in the construction professions and the support industry - building materials, components and services.
The universities, colleges and RTCs continue to provide a steady stream of well-educated graduates to the industry. The advent of computer aided design, computerisation generally and more developed management skills have helped to change the face of the industry.
Steady growth will enable the industry to grow to meet the increasing volumes - as long as the apprenticeship system can be sorted out.
The only black cloud on the horizon is the year 2000 - what will happen when the present phase of EU structural and cohesion funds finish?