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2021 was yet another turbulent year in the construction world. As the industry resumed in stages from April to May following the various Covid lockdowns supply chain problems emerged.
There were difficulties securing certain materials and then eye-watering increases in the cost of materials emerged. The cost of steel, timber, pipes and insulation all increased on a monthly basis. It was an impossible time in the estimating departments of contractors and for most quantity surveyors it was like gazing into a crystal ball trying to provide a cost estimate on any project.
For those stuck on fixed-price contracts, it was a particularly difficult period as contractors struggled to recoup the increased costs of delivering a project that was probably priced six to nine months before commencement. On public works, there was some relief with the Office of Government Procurement circular in September but there is still no price variation clause in Public Works contracts resulting in genuine difficulties for many contractors as any margin on a project disappeared.
Another complicating factor as the industry resumed activity was the exceptional demand for labour.
Clients insisted on accelerated programmes to make up for the time lost during the lockdown. These exceptional pressures on the construction supply chain were a reminder to the Irish construction sector that we are a relatively small market at the end of international supply chains. It can be difficult to re-establish these labour and material supply chains once they are disrupted.
Nevertheless, the industry is busy and the prospects look promising across main contracting, civil engineering, specialist contracting and of course residential construction.
Following the publication of the revised National Development Plan, it is now certain that Ireland will be embarking on one of the most significant infrastructural investment programmes in the history of the state.
It seems certain though that many projects are still in the “melting pot” when it comes to the selection process. This is particularly true for various road projects as the Programme for Government means there will be a 2:1 spend profile for public transport and active travel projects over roads.
Tough decisions will have to be made in the selection process. A concern that has emerged in relation to this 2:1 spending profile is that some road projects are necessary to facilitate sustainable development initiatives. It is noteworthy that many European cities facilitated the 15-minute city concept and urban regeneration projects by building bypasses, tunnels and ring roads to relieve congestion in the city centre, relocate ports, etc which in turn created the space for cycleways and brownfield residential construction projects.
There is however a significant increase in the allocations to Greenways and Cycleways with a budget of between €300m to €350m per annum. The budget for Irish Water capital works has also increased and should see an increase in the construction of various water and wastewater projects.
This is an essential element of increasing the capacity of zoned lands to deliver residential supply. Without the pipes in the ground development simply cannot take place. Investment in the local network is therefore vital and must take place in the areas of highest demand.
The real issue with the delivery of the National Development Plan will be the capacity of the state to deliver the planning, design, procurement and funding of projects. Are there enough planners, designers, procurers, judges and other experts in the public system to get these projects through the system? Will the public spending code be a quick enough process to assess the projects? Are the public works contracts fit for purpose?
It is a concern that most contractors have seen a decline in public works coming out to tender in recent months and as private works complete many contractors will be looking to public works in the coming years.
Over the last number of decades, Cork has developed as a centre of excellence for the construction of facilities for the pharma and biotech industry. Many of the consulting engineering companies and contractors based in Cork now forward-design, engineer and plan for such facilities right throughout Ireland and Europe.
In recent years, however, most of the new entrants to Ireland have not located in Cork and concern is growing in this sector around the reasons why more of these pharma companies have not chosen to locate in the region. Are the grants available for companies setting up operations outside Dublin and Cork a reason or is it the availability of “ready to go sites”?
Despite these challenges, specialist contracting continues to grow and the industry expertise for the construction of data centres and life sciences facilities means that Irish contractors are now in demand internationally and this sector will continue to drive the growing export-generating potential of the Irish construction industry.
Another area of growth in the specialist contracting sector has been the extraordinary growth of modern methods of construction, digital construction and off-site construction. Pre-cast beams and structures are now manufactured in Ireland and exported internationally.
Irish companies now lead the way in the manufacture of timber frame and steel frame housing. As well as supplying the local market many are now increasingly exporting abroad. There is now no doubt but in the near future most residential units and elements of offices, hotels, student apartments will be manufactured in a factory and installed on site.
Investment in various forms of real estate assets has kept the industry very busy in recent years with large institutional investors forward-funding hotels, student apartments and offices almost exclusively in the Cork and Dublin regions where demand is at its highest. This has been largely driven by the significant population and employment growth in these two cities over the last 20 years.
In Dublin, real estate investment has now also pivoted to build-to-rent apartment developments. We hope that in 2022 more of these institutional investors will also look to the Cork market (and other cities) as the city needs more apartments in the private rental sector.
The private rental stock needs to grow to cater for the continued growth in population as companies in the city such as Apple, Amazon, Facebook and the cluster of Cyber Security companies continue to grow their presence. It is a simple fact that there would be little if any apartment projects in Ireland without these institutional investors forward-funding construction.
If we didn’t have these institutional investors who else is going to fund the growth in our private rental stock? The recent analysis of this sector by some is truly bizarre in the context of a small open market country that has always relied on international investment.
2021 saw the publication of Housing for All. This plan aims to increase supply to between 30,000 - 35,000 units per annum. Many aspects of Housing for All are welcomed but some detail has yet to emerge such as Affordable Housing and the Shared Equity scheme.
There is no doubt though that residential construction activity will increase significantly over the next few years. It is supply that will reduce the price pressures and house our growing population.
An area of growing concern is the availability of zoned and service land as well as the viability of apartment development outside of Dublin. The Development Plan process is well underway in most Local Authorities and due to changes such as the reduction in the lifetime of the plan, the population growth headroom allowed, the provision of water/wastewater infrastructure as well as recent announcements in relation to taxing zoned land, the industry is left scratching its head wondering where will the land come from?
The residential sector has seen some “unintended consequences” from policy changes that actually constrain supply and unfortunately our regulatory regime is a very cumbersome, expensive and restrictive regime for residential supply. As a country, we implemented many regulations in recent years that have simply made it harder to deliver and we have to start comparing our regulations with those in Europe and elsewhere.
How long and costly is it to secure planning, a Fire Cert and a water connection? How do our building codes/regs compare with Europe in terms of apartment sizes and housing standards? How does our process for recycling concrete compare?
An overall Regulatory Impact Assessment must be conducted as part of Housing for All to help streamline delivery.
However one of the most frustrating aspects of housing and residential supply has been the politicisation of the issue and the growing number of so-called “experts”. We have social policy academics, politicians and others that pontificate at length on the issue with little of the technical or regulatory expertise that is needed to understand the various supply constraint issues that have emerged in the last 20 years.
We hope that in 2022 the bizarre arguments that supply has no impact on price or that more regulations do not mean an increase in cost to the consumer will be consigned to history.
Overall though the outlook is positive, the challenges remain but those working in construction are resilient and hardworking and will rise to the challenge of servicing the country's infrastructural needs. We have enough plans announced, now is the time to deliver and implement them.
- Conor O'Connell is a Director with the Construction Industry Federation