Time to rebuild the construction industry
Employment has dropped dramatically along with public sector work but the recession’s challenges are being faced
The construction industry is a vital sector of Northern Ireland’s economy. It plays a key role in economic development but in 2008/2009 when the economy hit the buffers and the wheels came off the economic engine of growth, the construction industry bore the brunt of the recession.
For years the industry had been reaping the rewards of the credit boom as demand for housing and infrastructure boosted construction work.
However, when private and public sector finances dried up and the economy slipped into recession, construction became a major casualty.
Just three years ago at its peak, construction accounted for 14% of GVA (Gross Value Added) in Northern Ireland compared to only 9% in the UK.
According to the Construction Employers’ Federation (CEF), which represents 72% of the industry, every £1 invested in construction generates £2.84 in economic activity.
It is also a major employer, providing 90,000 jobs in 2007 while thousands of other people including solicitors, carpet manufacturers and white good retailers, rely on the construction industry.
In contrast today there are more than 14,000 ex-construction workers claiming unemployment benefit, CEF research carried out in the run-up to the recent Westminster election shows.
However, its chief executive John Armstrong claims that is only the tip of the iceberg and the figure is closer to 28,000 when you take account of self-employed people who are out of work and are not included in the government data.
Figures from the Department of Enterprise, Trade and Investment (DETI) indicate that the axe continues to fall in the construction industry with a 1.3% decline in jobs in the most recent quarter while the industry now employs 13% less people than it did the previous year — the biggest slump of any sector in Northern Ireland.
But there are fears that the construction industry could decline even further as barriers to finance remain in place and the Stormont departmental budgets face cuts of up to 25%.
Ulster Bank chief economist Richard Ramsey said: “What is concerning is the accelerated fall in new orders and employment levels in the services and construction sectors. New orders in the services sector and construction industry are falling at their sharpest rates since March 2009 and June 2009 respectively.
“These two sectors are already in an extremely weak state and they are the most exposed to public expenditure. Given the sheer scale of the cuts coming down the line and Northern Ireland’s over-reliance on the public sector, economists may be tempted to throw a blanket over their crystal balls for now. What is clear though is that significant job losses in these sectors are inevitable.”
House building represents approximately 45% of the total construction industry and its demise has been a major blow. In 2007 Northern Ireland was the UK property hotspot with the average house price standing at £200,000 thanks to rising employment, low interest rates, huge public spending and a strong economy.
That created a huge demand for new housing but after the property market crash house-building ground to a halt.
CEF boss John Armstrong concedes: “There’s no doubt house prices had got out of control and were unsustainable. There needed to be an adjustment with house prices dropping by between 35% to 40% across Northern Ireland.
“We believe house prices are now broadly affordable but what I think is holding back a recovery in the housing market is the banks who are not lending, particularly to first time buyers.
“Construction companies are telling us there is plenty of interest in their homes but the banks are putting too many stumbling blocks in borrowers’ way, such as high deposits, prohibitive interest rates, lending restrictions and valuations. If the banks started to lend the construction sector would recover quite quickly.”
General construction and civil engineering, which makes up about 55% of the total construction industry, is also struggling as a result of its dependency on the public sector, which is a key buyer with demand by central government, local authorities and Government agencies keeping the construction industry afloat.
Mr Armstrong explains: “In general construction and civil engineering there’s no light at the end of the tunnel. Private sector contracts dried up on the back of the recession with the bulk of
work coming from the public sector. There is great uncertainty in the industry about what will be spent by each of the Government departments. There is a freeze on spending until we get clarity from London later in the year about how much money Northern Ireland will be given.”
However, the CEF chief admits that there has to be changes in the construction industry to deal with the challenges that lie ahead.
“In the long term we need to change the balance of dependency on the public sector and grow the private sector,” he said.
Although the construction industry is being pro-active it also believes politicians have a role to play in assisting the industry.
Mr Armstrong explained: “It should be a concern for our politicians because there’s significant unemployment in these areas, 28,000 construction workers have already lost their livelihood and that figure could increase dramatically. Until opportunities for work come through many companies have said they will be making more redundancies.
“We have to get the economy in Northern Ireland growing again by investing in infrastructure. We have to create a dynamic economy for Northern Ireland for people to invest here. We require schools, hospitals, transport networks and we would strongly argue for the benefits of investing in construction activity. There is also no point building new infrastructure if we are not maintaining the existing.”
He added: “We hope the politicians will look to efficiency savings in the public sector such as consultancy fees, and we believe there are plenty of efficiency savings to be made without cutting frontline services. There should be sufficient professionalism within the public sector without having to engage consultants all the time.”
While the construction industry is arguing its case for continued investment from the public sector, Mr Armstrong says it is not resting on its laurels.
“We do not want to be seen as going out with a begging bowl. We are looking at opportunities of attracting private finance into Northern Ireland.
“The public sector money is not going to be there — then private finance is a very useful alternative and should be seriously considered to fill the gaps.”
The CEF is exploring avenues including pension funds, the European Investment Bank and other sources. Other initiatives that are also being considered include link-ups with the private sector for skills training for the unemployed and apprenticeships. It is also looking to export opportunities for local firms and is in the process of re-establishing the Construction Export Group under the remit of the CEF.
Regardless, the outlook for the Northern Ireland economy is not good for 2010. The only crumb of comfort is that this year will not be as bad as last.
It is therefore unlikely that the construction industry will feel a positive push from the economy until 2011. Mr Armstrong agrees “it will be next year or early 2012 before we see any signs of recovery”.