The Big Picture

The housing and overall construction industry reports published over the past month have not been broadly positive so we thought this might be a good week to step back from the industry statistics and take a look at some of the wider factors influencing the economy.

Firstly, let’s address some of the points made by economist Seamus Coffey (who is also the chairman of the Irish Fiscal Advisory Council and a lecturer at UCC) when speaking at a recent Cork Chamber business briefing. Addressing a cross-sector business audience, the economist advised that any short-term measures, such as a temporary VAT reduction, would be unlikely to  have a real impact on the delivery of new homes within the State. This is not a position that we agree with, in fact, we need only look at the tourism sector to see exactly how successful this particular temporary measure can be. He went further to say that tax incentives had not proved successful in tackling housing shortages in the past. Again, this is too simplistic a view.

By the way, we ought to clarify here that we do not believe any single measure, temporary or otherwise, has the power to act as a silver bullet, the housing crisis is much too complex for this; however, it is undoubtedly a measure that – as part of a more strategic, holistic range of measures – would have a real and positive effect. In fact, despite being dressed-up as a consumer incentive, the help-to-buy scheme is a good example of a supply-side initiative that is working, albeit slowly.

Similarly, it was proposed earlier this week that residential landlords could benefit from future tax relief as an incentive to extend standard lease lengths. This is a measure that would certainly help the current rental crisis if rolled out correctly. Of course, one of the difficulties here is that politicians must avoid the appearance of giving industry incentives and instead, package such measures for consumers. The reality is that populist thinking leads to weak policy-making and this is bad for both consumers and the industry.

On the positive side, total employment in Ireland rose by 74,100 in the year to June, which represents a 3.4% increase. Construction is now the fastest-growing sector of employment in the State with 17,700 additional jobs over the past twelve months. As discussed here many times over the past year, building contractors are finding it increasingly difficult to recruit staff and we now know that construction wages are now growing at almost twice the rate of overall wage inflation – you might need to re-read that last fact. This cannot fail to impact the already-high costs of construction to potentially damaging levels.  As always, we would be interested to hear your views on this.

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group