Good morning ladies and gentlemen.
I am delighted to be here today to address the second annual Grant Thornton Property and Construction conference.
We meet at an important juncture in the recovery of the Irish economy and the construction sector.
Economic Outlook
When this Government was elected into office the outlook was very uncertain.
Unemployment was rising rapidly, the deficit was out of control, and the construction sector was on the floor.
In response this Government laid out its clear plan to rebuild our economy, to create jobs, and to get our national finances under control.
The sacrifice and understanding of the Irish people has been essential as we grappled with the serious challenges facing the country.
We have now reached a new phase in our recovery with the publication of Budget 2015 last week.
With the Irish economy now expected to grow by 4.7% this year we have the opportunity to introduce new reforms to help create more jobs.
We need to secure recovery by accelerating job creation in any way we can.
Since the launch of the Governments ‘Action Plan for Jobs’ we have seen the creation of an additional 70,000 new jobs resulting in the unemployment rate dropping to 11.1%, the lowest in 5 years.
At the outset of the Government’s plan in 2011 we outlined three targets, to exit the EU/IMF bailout, to reduce the deficit to below 3% and to create 100,000 jobs by the end of 2015.
Exiting the bailout last year marked a watershed in our journey of recovery and we are on target to exceed our deficit reduction and job creation targets next year.
A Sustainable Construction Sector
A big part of the Government’s recovery plan is to support a sustainable recovery in the construction sector.
The spectacular crash in the sector has caused widespread hardship and ruin for many and acted as a drag on the economy.
Nobody wants to go back to the bad old days of the construction and property boom. That won’t benefit the country, young families or the sector itself.
In rebuilding a construction sector based on excellence and quality we have to stand up and confront the major deficiencies in the sector that tolerated poor standards through a weak regulatory and enforcement regime.
We will not tolerate any more Priory Hall’s or pyrite housing estates.
Today there are emerging signs of recovery in the construction sector.
The latest quarterly figures show that the contribution to GDP from building and construction increased 9.1% in the past year.
CSO figures show that the volume of building and construction output increased by 10.1% year-on-year.
Employment in the sector is up by 3,600 or 3.5% in the year.
Construction 2020
In recovery Ireland needs a dynamic, competitive and sustainable construction sector – one that makes its full and proper contribution to the economy and to job creation.
In particular, we need an adequate supply of good quality homes to meet demand from a growing population, and we need high-quality commercial developments to underpin our economic growth.
To this end, in May we published Construction 2020, a comprehensive strategy for the construction sector.
We will remove unnecessary blockages to appropriate, high quality development, while ensuring that future growth and activity is sustainable, and underpinned by proper data and analysis.
The strategy is being driven by the new Minister of State Paudie Coffey who will ensure good progress on implementing its aims across Government.
Budget 2015 & Construction
In the meantime the Budget published last week was another part of our plan for recovery in the industry.
Already popular with homeowners, the Home Renovation Incentive will be extended to rental properties.
The Living City Initiative, announced in Budget 2013 and extended last year to all 6 of our cities, targets certain areas that are most in need of regeneration in these cities. I am confident that a positive outcome to our discussions with the European Commission will be announced shortly and the cities will be ready for a full roll-out of the Initiative in early 2015.
Construction Contracts Act
In supporting the construction industry the Oireachtas recently enacted the Construction Contracts Act and I understand the eagerness to see it commenced as soon as possible.
The Act requires the setting up of a Panel of Adjudicators to ensure resolution of commercial disputes between parties in the construction industry.
The Public Appointments Service will now design and implement the recruitment process for Adjudicators to be nominated to the Panel, the Minister will appoint a Chairperson for the Panel of Adjudicators, and the Code of Practice for adjudications under the Act will published, and a consultation group with industry will be established.
With a tightly managed timeline it is expected that the new service will be fully operational, and the Act commenced by Spring 2015.
Development Financing
Returning to the issue of development bottlenecks clearly one of the main inhibitors to development today is the availability of finance and funding.
On this issue let me be clear: the days of developers accessing 100% debt finance from banks are over.
As we know this reckless approach to credit led the construction sector, the financial sector, and the wider economy off a cliff when the downturn hit.
Any developers under the illusion that they can wait for these old financing conditions to return will be waiting a long time.
We need new thinking and new, more sustainable, approaches, including a more central role for equity financing.
To this end, a High level Working Group chaired by the Department of Finance and involving a broad range of stakeholders was established under Construction 2020 and is examining sustainable models of bank and non-bank financing for the construction sector.
There are now signs that the funding market for developers is also adapting with new types of ‘blended’ finance on offer.
This diversification of funding sources reduces financial stability risks and is a positive development.
I welcome this conference as one of the positive steps in the journey to bring funding providers together to confirm their support for the sector.
As recently confirmed in Budget 2015 the State, through the Ireland Strategic Investment Fund, will have a role to play in this area.
Under the auspices of the NTMA, the ISIF is exploring ways, through its commercial mandate, to support financing projects that will enhance the supply of housing.
Potential options include the development of house-builders’ investment funds, enabling of large scale development projects, and investment in social housing PPP projects.
We should begin to see developments in this area come on stream soon.
First Time Buyers
As I said there can be no going back to the past, when reckless mortgage and property lending by banks wrecked Ireland’s financial stability, resulting in massive taxpayer bail-outs and job losses.
That is why the Central Bank is currently consulting with stakeholders on the merits of imposing new, prudential limits on mortgage lending by regulated banks. It will make its decisions independently in due course.
At the same time, this Government wants home ownership to remain an attainable ambition for young, credit-worthy families. Without access to mortgage credit, young families will place increasing demands on the rental and social housing markets.
Other countries have found mechanisms to reconcile the need to ensure financial stability and tight prudential regulation of the banks with the need to ensure continued mortgage availability for First Time Buyers.
In the UK, Finland and Canada, for example, “mortgage insurance” markets have been developed to support mortgage lending to First Time Buyers, while also improving the quality of such lending and reducing the risk to the banks themselves.
I would like to see further consideration of the merits of a mortgage insurance scheme in the Irish context as a way to ensure adequate availability of mortgages for First Time Buyers.
To take this forward the Minister for Finance will ask the Oireachtas Committee on Finance to prepare a report on the issue, drawing on the experiences of other countries and domestic and international experts.
Property Bottleneck & Planning Reform
It is also clear that another major impediment to first time buyers is the current property bottleneck that is limiting the supply of new homes.
Part of the Government’s response has been to introduce a fit for purpose, flexible and proactive community led planning system. It is a vital support to a properly functioning construction and development sector and to the wider economy.
The Government is fully committed to ensuring that the mistakes of the past are not repeated and that the necessary structures are in place to support sustainable levels of construction activity.
Government agreed the outline of a new Planning Bill this week which will see the establishment of a new Office of the Planning Regulator. The new regulator will have a key role within the new planning and development sector. The Department of Environment will outline details of the new legislation shortly.
Other recently published planning legislation will see the introduction of new measures to help increase supply while also making developments more economically viable.
Measures such as:
· New lower rates of development contributions to have retrospective effect for existing planning permissions;
· The introduction of a vacant site levy aimed at incentivising the development of vacant sites in central urban areas; and
· Taking a “use it or lose it” approach for planning permissions which do not progress in line with previously indicated development schedules.
Social Housing
The Budget has also seen the Government recommit to quality social housing provision.
Minister Kelly will publish a Social Housing Strategy in the coming weeks but in the meantime we have agreed to significantly increase the capital provision for social housing, over €2.2 billion for the next three years.
This will involve three main strands:
· Over €1.5 billion will be directly invested from the Exchequer by 2017;
· Public Private Partnerships will be used to invest €300 million in social housing units by 2017; and
· An off-balance sheet financial vehicle will provide at least €400 million from 2015 onwards to the Approved Housing Bodies.
Overall, this large-scale investment will fund the provision of over 10,000 housing units by 2018.
Conclusion
Just as we have a plan for economic recovery, we have a plan for the construction sector, so that it can contribute to its potential to Ireland’s recovery and growth.
Construction 2020 reflects the importance that the Government attaches to getting the sector back on the right path. Its implementation is being overseen at the highest levels and we are making good progress.
It is time to secure recovery for the economy and for the construction sector.