A road map for planning, development, construction and related job creation in Ireland

Many of the posts on this blog have been critiques of the planning system, the construction sector/developers, the banking sector, and government policy or lack of.  A critique of the blog is that it doesn’t do enough to put forward solutions and a positive path forward, especially given widespread unemployment amongst former construction workers and development residing at the bottom of a deep slump rather than being a productive part of the economy.

In this context, a key challenge for Ireland is to re-grow the construction sector back to a normal, sustainable level as a productive part of the economy and to get construction workers back to work without exacerbating existing issues and problems with respect to property.  This is no easy task, but here is my suggested road map.

First, any attempt to resurrect construction activity in Ireland has to take place within a strategic approach to planning and property that strongly guides any development takes place.  The adoption of core strategies and revisions to the Planning Act are a step in the right direction, but are specific tactics, not strategic visions.

To this end, the government needs to put in place a strategic planning and development framework that combines spatial planning (what used to be the National Spatial Strategy, NSS) and sectoral planning (what used to be the National Development Plan, NDP).  The present NDP expires end of 2013; the NSS is hollow and in review.  The proposed Medium-Term Economic Strategy (MTES) 2014 to 2020 will focus on macroeconomic strategy and policy actions for achieving sustainable economic and employment growth, not planning and development.  The MTES needs to be complemented with a new NDP to run 2014-2020 to guide investment, underpinned by a NSS that will ensure coordination across sectors and locales.  In other words, it should consist of joined-up thinking.  The danger is that without a strategic approach, the development that does occur will be ad hoc, poorly linked, weakly leveraged and will slow recovery.

Both the new NDP and NSS need to be based on an evidence-informed analysis of the present state of property (housing, office, industrial, agricultural, etc), planning/zoning, and models of projected demand based on demographics, economic growth, labour market demand, etc.  This requires decent property data (we have some limited housing data; no independent commercial sector data) that have temporal and spatial resolution.

This strategic framework needs to be prepared to be selective.  Rather than trying to encourage growth everywhere, it should aim to grow selectively to create agglomerations and critical mass.  Agglomeration is important for growing jobs and the economy.  Employ a smart consolidation approach elsewhere (focus on quality of life and sustainability, rather than growth).  Limit further one-off housing: it is unsustainable in service terms (utility and service provision) and environmentally (water pollution, commuting, etc) and contra to popular belief evidence suggests weakens rural communities.

Part of the strategic framework should focus specifically on housing and produce a comprehensive housing strategy.  As well as planning for the future, this strategy needs to address all the issues affecting housing at present:

• vacancy and oversupply in most of the country and pockets of undersupply in specific locales
• large numbers of unfinished estates and poor build quality (issues of pyrite, etc.) that need to be retrofitted
• huge numbers on the social housing waiting list, stalled regeneration schemes, collapsed PPPs
• extensive mortgage arrears and negative equity
• the lack of mortgage credit and a large proportion of cash buyers
• the lack of finance for development and the lack of active developers
• Supply of land.  Land has to be made available sensibly: land bank through NAMA, Site Value Tax/Kenny Report to get derelict/brownfield sites back into productive use, bring on strategic greenfield sites, and limit future land speculation.

Development needs to follow best practice planning principles and should be integrated in nature.  Residential development cannot be simply houses but also needs to be utilities, schools, creches, public transport, etc.  Piecemeal planning undermines formation of sustainable communities.  When housing construction occurs, all the other elements also need to occur at the same time (not several years later).

Second, the creation and delivery of any strategic plan needs to be properly resourced in terms of staffing and finance.

Proper planning requires administrative units capable of delivering: the Department of Environment is severely understaffed with respect to planning; regional planning authorities are shells; local planning authorities are emasculated; NAMA should be part of this coalition.

Development requires finance — there is a need to source investment capital given the Irish banks are not lending.  NAMA should fill the void where possible.  If there is true demand the market does not need stimulating and tax incentives/subsidies should be avoided.  The construction/development sector needs access to finance through loans not incentives.  Do not sacrifice measures such as Part V Social and Affordable Housing provisions of the Planning Act (we need social and affordable housing).

Third, we need new entrants into the sector to replace failed enterprises.

Encourage new developers through loans/grants — many of the older ones are bust, tied up in legal cases, or cannot access investment capital.  We need new entrepreneurs to enter the market who have fresh ideas and energy and do not have any of the bad habits and institutional memory of the old set.

Encourage new, large rental companies into the market and professionalize the rental sector.  The rental sector is under-regulated and is dominated by amateur landlords (70% own 1 or 2 properties).  Encourage cooperative and association housing and make finance available to them for new projects.

Specific ideas to re-grow the construction sector back to a normal, sustainable level and to get construction workers back to work

Invest in capital projects that will stimulate the economy beyond construction jobs (i.e. will provide the conditions that will attract inward investment and indigenous growth)  — public transport, utilities (electricity grid, water system, broadband), public infrastructure (e.g. school building — 1 in 3 schools still have prefabs and the number of children is growing; hospitals; universities, etc), selective road building, etc.

Proactively address the housing issues detailed above.  (1) complete viable unfinished estates and deconstruct the others; (2) address build quality and pyrite-infected homes; (3) restart regeneration projects and revive PPPs with new partners; (4) refurbish existing social housing.

Enable private housing in very select locations where there is a demonstrated demand/projected demand based on hard evidence.

Enable office development in very select locations where there is a demonstrated demand/projected demand based on hard evidence (remember >20% of office space in Dublin is vacant; in some parts >40%; similarly lots of empty retail/industrial space in Dublin and throughout the country).

Curtail speculative development of all kinds where there is no demonstrated need/demand. Under no circumstances create additional supply in areas where there is already oversupply as it will flat-line any recovery and extend related problems.

I am open to suggestions and debate with respect to this road map.  We need these kinds of conversations.  What I do not think is sensible is to have no strategy and plan and to simply try and muddle through and hope that inaction and the present lack of policies and direction will somehow solve our various issues.  They won’t; they are more likely to cause additional problems.

Rob Kitchin

 

Projected 120,000 people to emigrate 2010, 2011

The ESRI released their Quarterly Economic Commentary today.  The Summary is here and the press release here.  Basically they see the situation stabilising this year and improving slightly next year.  That doesn’t sound too bad, but some of their data and conclusions are, I think, very worrying.  Here’s what they say about GDP/GNP:

• “For 2010, we expect GDP to grow by ¼ percent in volume terms; the corresponding figure for GNP is for a fall of ½ per cent.
• For 2011, we expect GDP to grow by 2¾ per cent and GNP to grow by 2¼ per cent. While this return to growth is to be welcomed, it should be seen as a modest pace of growth.”

The government deficit will be 11.5% of GDP in 2010, but will rise to 19.75% because of bailout for Anglo Irish Bank and INBS (19.75% is a massive amount of debt).  They suggest it will be 10% GDP for 2011 if austerity measures are implemented.  They argue against stimulus packages based on the possible costs per job.  They think that investment in education and training would be a better bet.  I’d be sceptical that by training people jobs will magically appear and the benefits to stimulus are savings on welfare, real outputs, the creation of infrastructure that will aid indigenous companies and attract FDI, and multiplier effects across the private sector.  Whether the markets/banks will be prepared to lend for stimulus programmes is a different matter.

With respect to employment, ESRI expects it to average about 1.85m for 2010 and 2011, with unemployment averaging 13.25% in 2010 and 13% in 2011.

The statistic that stands out most for me, however, is the prediction that 120,000 people will emigrate: 70,000 in the year ending April 2010 and 50,000 in the year ending April 2011.  This will take us back to the kinds of numbers emigrating at the end of 1980s.  Such emigration wi’ll provide a little bit of a safety valve on welfare payments, but the country will also lose a cohort of relatively young workers, many of them well skilled.  And it will exacerbate the housing supply issue and potentially slow up recovery there.  Given the state of the economy and levels of unemployment in lower age groups such emigration is no surprise, but it will have ripple effects in coming years.

We desperately need a jobs programme – not aspirational statements – but an actual programme with an associated strategy and road map, and it to be implemented and driven forward.

Rob Kitchin

 

Pfizer: should we worry?

Yesterday 785 workers were told they may lose their job at Pfizer. This time the job losses are occurring in a sector that was generally believed to be relatively insulated from the effects of the global recession. Should we worry? I would say yes, if it was only for the fact that yesterday’s announcement is just the first step in a larger Pfizer restructuring programme. Last year, at the time of the mega-merger with Wyeth, the company announced that this restructuring programme will involve 19,000 job cuts. Yesterday’s announcement dealt with 6,000 of these. So far, the company has evaluated the sites that manufacture injectables, solid dose, biotechnology medicines and consumer health care. The evaluation of the active ingredient sites, of which Cork also has a few, is still to come. These are the sites that employ the most highly skilled workers.

But there are other reasons to worry, not only for Pfizer workers but for Pharma workers in general. Tánaiste Mary Coughlan has told the Dáil that the job losses at Pfizer have nothing to do with the Irish economy, but were caused by the overcapacity generated by the company’s merger with Wyeth. On the face of it, the Pfizer job losses could be interpreted as a one-off global restructuring of a company that faces over-capacity due to recent merger activity.  However, I believe we are dealing with a more structural issue here. The Pfizer global restructuring is partly driven by a lack of new products to replace a number of blockbuster drugs that are coming off patent. The first one, in 2011, is Lipitor but the next one, Viagra, is not far behind.  Think about it: Loughbeg, one of the plants to be closed, was the global manufacturing site of  Lipitor. Loughbeg  manufactures all of the active pharmaceutical ingredients (the few micrograms of substance with the actual pharmacological effect) and eighty per cent of the formulation (the actual tablet) in Ireland.

Mr. Ricciardi, Pfizer’s global manufacturing president, is quoted saying that “we are not announcing closures, we’re announcing exits”, citing hopes that Pfizer will be able to sell some of the plants to other pharma companies. But what if other companies are starting to develop similar plans for “exits”? Pfizer is not alone. Many other companies are facing the drying up of their drug pipelines with little to replace the blockbuster drugs. Companies are frantically looking for replacement drugs. However, chemical synthesis, the core capability of the traditional big pharma companies is reaching its limits for new drug development. Many diseases will require large molecule drugs that are too complex to produce via chemical synthesis. The hope is that the biopharmaceutical subsector will be able to fill the gap. The IDA has acted with their usual great foresight and has very successfully attracted a number of large biopharmaceutical plants to Ireland. The problem is that this may not create enough jobs to offset the losses in the chemical synthesis subsector and the skills requirements of the two subsectors are different.

From 2011 a lot of drugs come off patent and this will have a big impact on the industry in Ireland. The current value of export is 44 bn. 26% of that is patent protected. It is improbable that this will continue to be manufactured in Ireland. This market will be taken over by specialized generics companies, many of which are located in India. Research undetaken by Frank Barry (TCD) and I shows that local subsidiaries in Ireland and their parent companies have started planning for this over the years. The local plants have changed their role in the global production networks, developing into strategic launch plants and flexible multi-product plants, capable of producing niche-products and the downstream, higher value added elements of the synthesis cycle. An increasing number of companies are beginning to outsource the early, less skill intensive, steps of the active ingredient synthesis cycle to fine chemical companies. Very few processes are outsourced to companies in Ireland. Pharma companies are increasingly using low-cost suppliers in India and China. Until now Pharma companies remain hesitant to outsource the later stage synthesis to companies in India and China, doubting whether these companies have the requisite technical knowledge and can meet the health and safety standards required to supply the highly regulated EU, Japanese and North American markets. This perception is changing, however.

Ireland`s rapidly rising wage levels of the Celtic Tiger era provided an extra incentive to use the Irish facilities for the higher value added elements in the manufacturing chain, notably for new product introductions and late stage synthesis. In principle, such upgrading activity is a healthy development. But this will be of little comfort to the Pfizer and pharma workers affected. I would worry.

Chris van Egeraat

 

Potential for and implications of out-migration in Irish rural areas

Not all rural areas are equal. There are accessible and remote areas with the latter continuing to lose population over the past decade (See Chapter 3 Population and Settlement Change in the Republic of Ireland 1991 – 2006. Demographic Impacts and Implications for Rural Areas). It would however be overly simplistic to argue that remote areas are the ones that will experience significant population loss as this would be to ignore the demographic profile of rural Ireland.

Migration is generally a young person’s (those in their late teens and 20s) activity. This is likely to be particularly true today as those in the older cohorts (30s+) are more likely to have purchased houses.

 

Assessing the impact of the economic downturn on part-time farmers (Part 2): Economic Change 2008 – 2009: Impact on off-farm employment

The data presented thus far highlight the decline in agricultural employment, they do not, however, provide any indication of the impact of the economic downturn on farmers that engage in off-farm employment. The most recent data from the National Farm Survey (NFS), relating to 2008, indicate that 40% of all farmers held an off-farm job (Connolly et al., 2009). For these individuals, off-farm income accounted for 71% of their total household income, highlighting the vital importance of off-farm employment to farm households and in contributing to the viability of the farm enterprise.

 

Assessing the impact of the economic downturn on part-time farmers (Part 1): Employment Change in the Agriculture Sector 2004 – 2009

The numbers employed in agriculture initially declined from roughly 114,000 to 110,000 between 2004 and 2005 and thereafter remained at this level until Q3 2007. From late 2007 to the end of 2008 agricultural employment increased to 115,000 before witnessing a rapid decline during 2009 to a low of 98,000. These trends track developments in the wider economy with declining agricultural employment (2004 – 2007) corresponding to increasing off-farm employment opportunities. With the fall in non-agricultural employment opportunities from 2007 onwards it is possible that those working off-farm re-engaged in agriculture on a fulltime basis thereby accounting for some of the increase in the total number employed in the sector.

 

NAMA staff exempt from public-sector pay cut

If we didn’t already have our suspicions about the state creating divisions between different sectors of the labour force, the Department of Finance has announced that NAMA staff will be exempt from the public-sector pay-cut due to come into effect today.  The rationale for this exemption, as reported in the Irish Examiner, is that the National Treasury Management Agency (through which NAMA has been established) has always set its own pay rates “ in order to compete with the private sector for high-calibre employees”.  The Department of Finance is quoted as saying;

“The NTMA has been excluded from the scope of the act because it has, since its inception, acted independently with regard to the setting of rates of pay for staff with a view to ensuring its ability to employ and retain the staff necessary to perform its tasks”

What this rather circular argument does is to reinforce the perception that those working in banking and finance are worth more to the country than groups such as nurses or Gardaí.  It is also a bit of a slap in the face to those who have taken pay cuts so that NAMA can be set up, when the agency’s staff will not be obliged to take a comparable hit.  All of this does not bode well for the prospect of major political and social change in Ireland in 2010.  The NTMA did suggest, however, that it would facilitate any staff that wished to take a voluntary pay-cut.  Perhaps the NAMA office will be swept by a wave of social consciousness and good will, brought on by New Year resolutions, and we will see a swift uptake on this option.  Here’s to 2010. Happy New Year!

Cian O’ Callaghan

 

New earnings and employment data

For those interested in earnings data, and the debate about private versus public sector pay, the CSO has just published its Earnings and Labour Costs report.  The results come from the new Earnings Hours and Employment Costs Survey (EHECS), which covers all sectors of the economy other than agriculture, forestry and fishing,  For the first time this report gives a breakdown of earnings across different NACE sectors.

Average weekly earnings for different NACE groups

The headline figures are that between Q2 2008 and Q2 2009 the workforce shrank by 6.2% (109,500), and average weekly earnings fell by 1.1% from €706.03 to €698.43.

Earnings in the private sector fell by 3.1% compared with a rise of 1.3% in the public sector (although the latter does not include the pension levy deduction introduced in March 2009).  Of course there are all kinds of reasons as to why you would expect differences in public and private sector pay, including differences in the nature of the jobs, employee education and skill levels across job types, structural organization of employment, salary cuts and job losses in the private sector, and so on.

Headline figures really do not really illuminate the issue to any great degree, and the debate as its currently expressed is largely a red herring, designed to divide and conquer and distract attention to the real issue – the mismanagement of the economy over the past ten years and the massive hole in the tax base created by naïve neoliberal policies.  That’s not to rule out per se all forms of structural adjustment given the depth of the financial crisis, but that the argument used to justify such adjustments should have some level of legitimacy and not work to undermine social harmony by pitting different kinds of workers against each other.  Getting ourselves out of this hole will be a lot easier working together and the public/private, zero-sum debate seems largely unhelpful to me.

Anyway, enjoy the xmas break.  There might be a couple of posts next week, otherwise normal service will resume in the new year.

Rob Kitchin

 

Public sector pay cuts: the hidden geographies

Castlebar, Portlaoise, Sligo, Mullingar, Kilkenny, Letterkenny. These six towns have most to fear from the public sector pay cuts just announced by Brian Lenihan. The reason? The proportion of workers employed in the public sector – around 40% in each of these towns, according to CSO data from the 2006 Census (see Table 1).