The Irish Mail on Sunday
What Kenny didn’t tell you when he unveiled his (very cynical) plan to boost building
Construction 2020 is purely about building votes
THE Government’s new stimulus package for the building industry looks more like a plan to stimulate itself in the looming elections. Could the timing of Construction 2020 – just over a week before the local and European polls – be any more cynical?
The industry has been on its knees for seven years. More than 170,000 people lost their jobs in the construction sector between 2007 and 2012.
Of course these people deserve a chance to get back to work. Of course our cities badly need new houses.
Dublin in particular is seeing an unseemly scramble for scarce homes that is driving prices through the roof.
This plan aims to solve the problem by kick-starting construction, creating 60,000 new jobs in the process. That makes a lot of sense. The Exchequer would save a fortune, the economy would get a massive boost and our unemployment rate would finally shrink into single figures. Ireland’s economic profile would be transformed.
But isn’t it a little late in the day for all of this?
The Government’s plan aims to triple housing output by 2020.
Even if it is a roaring success, which is highly unlikely as we’ll explain further on, this would be just enough to meet demand in six years’ time.
It will be 18 months before any new homes actually get built, by which time the shortage will be an awful lot worse.
Instead of patting Enda Kenny and Eamon Gilmore on the back for coming up with all this just before the elections, shouldn’t we instead be asking why something wasn’t done about this years ago?
How did they allow a situation to emerge where just 1,360 homes were built for 1.3 million people in the Dublin area last year – at a time when so many construction workers were crying out for jobs?
The obvious excuse for not doing this sooner is that the finance was not available. But I don’t quite buy that. There’s very little actual finance in the plan.
The announcement grabbed headlines as a ‘€200m plan to revive construction.’ But it could just as easily have been a ‘€2bn plan’.
The €200m figure is the tot for several projects that seem to have been rounded up at the last minute – and which aren’t even included in the main document.
They range from new roads to creches and a fund for commemorating the 1916 Rising.
Nor is there anything new about how all of this is going to be paid for.
The Construction 2020 document vaguely pledges to raise money by more ‘ engagement’ with the European Investment Bank and the European Investment Fund.
The European Investment Bank has been investing in Ireland for years and the European Investment Fund has been around since 1994.
SO WHY did they not ‘engage’ a couple of years ago and thereby create jobs for builders then that would have generated badly needed homes for families now?
Few measures are properly costed – and several were announced ages ago.
Another ‘action point’ in the document promises to ‘provide €57m Exchequer funding for energy-saving measures’ in homes – a measure already announced in November 2013.
Another is €2bn to be spent by Nama, in addition to €500m already spent. Yet Nama announced those exact numbers in a press release dated May 2012.
Many of the plan’s so-called action points contain no numbers but plenty of aspirational words such as ‘consider’, ‘examine’ and ‘establish a working group’.
There is also a lot about con- tinuing to ‘implement’, ‘support’ or ‘enhance’.
One of its most random statements reads: ‘Revenue and other relevant State agencies will continue their work combating shadow economy activity.’ Well, nobody expected them to stop doing so.
One of the document’s few genuinely new proposals – and not in a good way – is a mortgage insurance scheme.
This would enable first-time buyers to get 95% mortgage finance by effectively issuing a State guarantee on part of their loans. Has nothing been learnt from the disastrous bank guarantee of 2008?
This measure would not only involve the State in bailing out the banks but in subsidising their loan book as well.
The net result would give young couples more money to buy homes. But there aren’t enough homes for them to buy, in our main cities anyway.
So this would stoke up already fierce competition, driving up prices ever higher.
If banks want mortgage debt insured why don’t they just use an indemnity bond, as was common practice not so long ago?
Even the Construction Industry Federation, which should be over the moon, could muster only a lukewarm welcome to the strategy.
It rightly pointed out that the key obstacle to building houses is development funding.
Banks still insist on builders coming up with at least half the money at a time when they simply don’t have it.
And this, the most important point of all, is not even properly addressed in the plan.
The best it can offer is the establishment of yet another ‘high-level working group’ that will ‘explore the issue of sustainable bank financing’.
Wouldn’t it be better off guaranteeing loans to builders instead of buyers so houses can actually get built?
Instead, they seem to prefer driving up the cost of ever- more-scarce homes. In fact, jacking up property prices would suit the Government nicely by improving the financial position of the banks in advance of key stress tests later this year.
An important element of these tests is the value of the collateral underpinning mortgages (that is, our homes).
Any increase in property prices will help to shore up bank balance sheets.
Finance Minister Michael Noonan admitted a few weeks ago that he was delighted with rising property prices, which, he said, would help Irish banks to pass these upcoming stress tests easily.
‘Nama’s approach [in dripfeeding property slowly onto the market] has been vindicated by the significant improvement in the Irish property market over the past 12 months,’ he told the Dáil, welcoming higher prices as ‘very good news’.
NOW the Government has the cheek to come out with a halfbaked plan to solve a problem (the rising prices caused by scarcity) that, in April, Mr Noonan was claiming credit for helping to create. There are some positive measures in the strategy but the overall exercise is so sweeping and blatantly politically opportunistic that they get lost in the sea of waffle.
It smacks of a hastily compiled list of items that, however tenuously, somehow links Government with construction.
One also has to wonder about the coincidence of this plan appearing just after we learned of the planned departure of the highly regarded John Moran as secretary general of the Department of Finance.
Mr Noonan pointed out that Mr Moran, who was effectively seconded from the private sector, was never really a career civil servant who would spend 40 years in the job.
Reading between the lines, does this mean that he simply couldn’t stomach this sort of cynical political stroke any longer?