Last Friday the Department of the Environment, in its report Review 2000: Outlook 2001-2003, forecast that the growth rate of 3 per cent which it anticipates for the construction industry this year will be continued through the next two years. The Minister for the Environment, Mr Dempsey, also argued that "the moderation in growth" would mean the construction inflation rate will fall from last year's 12 per cent to eight per cent this year. The Construction Industry Federation (CIF) is having none of it and argues that this year's inflation rate will be "well below" eight per cent and says that the government has seriously under estimated the problems facing the industry.
However, what really matters is not the actual level of activity but how the government should respond to the growth slowdown. The director general of the CIF points out with some justification that employment levels will drop unless the new spare capacity in the industry can find work. He wants to see projects in the National Development Plan speeded up and also says that the government should sort out the impasse between farmers and the National Roads Authority over the price of land.
Mr Dempsey must act with caution. Construction is still running a bit too fast for some customers. Granted the industry responded to the boom conditions by investing in training of new recruits and the purchase of much new equipment, but the reality is that construction was overheating. If the reduced growth brings equilibrium between capacity and demand, then it is to be welcomed. The farmers deserve a fair price for their fields but the roads authority has a duty to ensure that public funds are expended on a value-for-money basis. If that means further delays in the road programme, so be it.
However, the CIF is on a stronger ground in the case of residential property. The CIF predicts a ten per cent drop in housing completions this year. The recent reduction in new house prices reflects the nervousness among housebuilders. The government must devise measures to encourage the construction of more rental property or else watch an accomodation shortage turn into a crisis.