Spotlight on construction
How the sector is emerging from the recession.
If there’s one thing Northern Ireland’s construction industry longs for as it enters a new decade it’s stability.
The last few years have been a proverbial rollercoaster ride for the sector. First there was the unprecedented property boom, then the sudden crash, the financial crisis, and the tightening of the public purse strings. The inevitable rapid contraction has left the sector reeling, but it’s determined to emerge stronger when fortunes pick up.
“We’ve certainly had a couple of turbulent years,” says Construction Employers Federation managing director John Armstrong. “The industry did very well until 2007 but house prices were getting way out of line with long-term trends.”
The fall-out from the property downturn has led to major upheaval in the construction sector, illustrated most starkly in the number of job losses over recent years. Armstrong estimates that employment numbers have fallen by as much as a quarter from a high mark of 84,000 three years ago.
“If this was from one company there’d be an outcry, but because it happens to smaller firms in dribs and drabs, its true magnitude tends to go unnoticed,” he says.
With building projects curtailed, the downturn is being acutely felt on the supply side. Companies that produce cement, concrete, asphalt, pre-cast concrete and aggregates have all been severely impacted.
“Aggregates and cement markets have dropped steeply since mid 2008, and the industry job losses are a graphic illustration of how the construction sector has been hit by the recession,” says Gordon Best, regional director of the Quarry Products Association NI. “Although job losses are finally levelling off, there is real fear that things will remain as they are for some considerable time to come.”
It’s only a small consolation but glimpses of a return to normality are evident in the most recent surveys of the residential property market. The University of Ulster and Bank of Ireland research published in February pointed to signs, albeit modest, of recovery in the final three months of 2009.
Despite average prices falling for the first time since March 2009, commentators said increased sales, which reached a two-year high, were a sign that the housing market is on the way to recovery. The Royal Institution of Chartered Surveyors (RICS) Housing Market Survey for January 2010 showed similarly encouraging signs. However, Bank of Ireland economist Alan Bridle sounded a cautionary note.
“Steady progress in activity levels may be the most likely and desirable scenario for this year but in my view we should not expect much of a re-bound in average prices and there is still a risk of them slipping further,” he said.
It appears the tentative signs of recovery in the housing market have yet to translate into sectoral confidence. The RICS Construction Market Survey for Q4 2009 found levels of pessimism among property professionals in Northern Ireland were notably higher than in the rest of the UK. With the region mired in severe recession, chartered surveyors believe that the situation will only get worse.
RICS Northern Ireland spokesman Jim Sammon says: “There clearly remains a significant amount of pressure on the Northern Ireland construction industry.
“Investment in private sector construction has been significantly curtailed and, with economic growth this year likely to be weak at best, there is unlikely to be any kind of notable rebound.”
Sammon believes public sector work provides a lifeline for the industry, but concedes that budgetary pressures are constraining capital expenditure projects.
John Armstrong says the industry had high expectations of the Stormont Executive’s investment strategy but that the planned expansion of infrastructure has failed to materialize.
“Initially we were encouraged as the public capital expenditure budget grew from £700 million to £1.6 billion in a matter of years,” he says. “However, work envisaged under the Investment Strategy is slow coming to market.”
While there’s an obvious self-interest in promoting government-led construction projects, Armstrong believes major investment in building hospitals and schools will have wider economic benefits. He points to a recent report commissioned by the UK Contractors Group, which highlights how construction is one of the best ways of stimulating economic activity.
“In terms of economic recovery, investment in construction is more productive than many other sectors,” he says. “Every £1 spent on construction output generates a total of £2.84 in economic activity.”
The CEF managing director’s sentiments are echoed by Gordon Best: “It’s vital that the Executive and Assembly members identify and focus on key future spending priorities that will provide a real stimulus to the economy and have the widest possible economic multiplier effect across the community.
“Public investment through the revenue route into the maintenance of our schools, hospitals, roads and particularly the social housing sector in which there is a huge historic under-spend are examples where effective spending can have significant benefits within the economy.”
