The need to invest in infrastructure is urgent. Ireland is like a child which has outgrown its clothes – we need more housing, better public transport, and more health facilities, to fit the size and shape of today’s population. In addition, the challenge of decarbonising the economy means we also need huge additional investment in electricity, and in retrofitting housing and other buildings.
For much of the history of the Irish State, unemployment was endemic, with emigration the only solution for many. Under these circumstances, any major investment which created employment was welcome. However, over the past 20 years, the economy has moved to a new reality where full employment is the normal state, except during economic downturns, which have proven temporary. This was the case in the early 2000s, before the financial crash. As Ireland recovered from that crash, we had again reached full employment before the pandemic struck. The economic rebound post-Covid has again meant full employment and labour shortages. This change in circumstances has major implications for public policy.
Last week the Economic and Social Research Institute (ESRI) published an important report, looking at priorities for investment up to 2030 under the National Development Plan. Since that Plan was originally drawn up in 2021, we have had a bout of high inflation, a very big growth in population, and the Government has increased its climate ambitions. So it was timely to review the priorities, assess whether they should be varied, or whether additional funding should be deployed to address higher building costs.
Extra public investment is urgently needed. The question is, can the economy produce it? If we could provide the extra infrastructure predominantly through importing it, there would be few problems. If we could import housing in kit form and assemble it in days, like an Ikea flat-pack, it would just be down to money, where the Government is currently flush. However, most of the new buildings we need will have to be built in Ireland by workers who are living here while that job is under way.
[ Government faces struggle to hit housing target, say expertsOpens in new window ]
The ESRI’s central message is that money alone is not the answer. New investment is definitely needed, and the Government has considerable financial reserves to pay for it. The real constraint on delivering more housing, more public transport, more housing retrofits, and major renewable electricity capacity, is that there are not enough people in Ireland with the relevant skills to undertake the work. Without tackling the skills shortages, if the Government were to barge ahead and spend extra money, the report concluded that instead of getting the extra infrastructure we need, the outcome would just be more inflation.
It’s rather like 2006 all over again, the report warns. At that time, the ESRI gave a similar warning about trying to raise investment in an overheated economy. It had argued that if the Government wanted to spend more on socially useful projects such as public housing, it would need to engineer a reduction in investment in private construction activity to free up the scarce building skills. The 2006 warning was not heeded and the housing bubble eventually burst, with disastrous consequences for the wider economy and the public finances.
[ Head to head: does retrofitting your home pay off?Opens in new window ]
This time around, the ESRI has a very similar recommendation. If the Government’s top priority is housing then it should tax other forms of building and construction to free up construction workers to deliver on additional homes.
But new homes are not the only priority area. In the long term, it’s even more critical to reduce our greenhouse gas emissions, and to invest in adapting to the vagaries of a changing climate. However, there is competition for the same scarce building workers between retrofitting existing homes and building new ones.
A surprisingly high number of skilled workers will also be needed to grow our renewable electricity capacity, the ESRI finds.
Overall, the ESRI shows that the demand for different forms of construction is greater than the sector can deliver in the immediate future. In assessing the costs and benefits of individual projects, those with a major labour input should be lower on the priority list while this scarcity persists. Promoters of investment projects need to promise fewer, not more jobs.
Ireland needs a serious effort to grow the building workforce we badly need. While this may take some years to bear fruit, we need to increase the number of people in training in construction skills. Only one in 10 building workers are women, Census 2022 showed. Getting more women to train in this area – Bríd the Builder, as well as Bob the Builder – could be an important answer.
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