PETER STAFFORD summarises the results of Society research into the current size of the surveying profession in Ireland.

Quantity surveyors and building surveyors are familiar with the art of measuring and costing; it is the bread and butter of their professional lives. What is less often measured is the size and value of their professions.

In January 2012, the Society of Chartered Surveyors Ireland undertook a major survey of the state of the Irish construction industry. The aim was to present an authoritative and clear account of the drivers for change in the industry. Every economic commentator in Ireland has recognised that the construction sector was the first to enter recession and has been the hardest hit by the crash. Nonetheless, construction remains one of the most misunderstood forms of economic activity.

A two-fold report

The approach taken by the Society was twofold. Firstly, the Society hired DKM Economic Consultants, who undertook a detailed analysis of the main sectors of the construction industry – residential building, commercial and industrial building, and civil engineering – in order to assess their current capital projects and future spending plans.

The second part of the report was based on a detailed in-house survey of quantity and building surveying practices. This survey asked members of the Society about their activity levels in terms of changes in turnover and employment. It also asked about client sentiment and the future pipeline of work. The report tied these two strands together to understand the roles of the diverse construction professions, and the role of the industry within the economy.

The final report was produced in April 2012 and its results were sent to members, political leaders and other industry professionals.

Results

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FIGURE 1: What is the optimum size of the construction industry?

The conclusions to our report were stark, if not unexpected. It is generally accepted that in a healthy economy, a construction industry should account for around 12-15% of economic activity.

This gives it the size and capacity to deliver for a range of private and public clients without ‘crowding out’ other forms of economic activity. The Society’s report showed that in 2007, during the height of the Celtic Tiger, construction output reached twice its optimum output, as activity hit €37bn, equivalent to 23.6% of the State’s economic activity (Figure 1). This was clearly unsustainable.

What was also unsustainable was the lack of diversity. In 2006, for example, 49% of all construction activity came from new private house building (€22.3bn of a total output of €34.8bn). A sudden decline in the demand for new residential property had a more serious impact on the wider industry than if it had been more balanced between civil engineering, public works and private developer-led works. As Figure 2 shows, new house building has declined by 91% from the peak, while non-residential and civil engineering works have fallen by 47% – this ‘drag’ from the house-building sector partially explains why the total industry has shrunk in output by 77% from its peak.

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FIGURE 2: Output of the construction industry from peak to 2012.

This year, total output of the sector is likely to fall to €7bn, half its optimum output of €15bn. In mid 2009, the industry reached its optimum size, after two years of very painful contraction, but has continued to decline so that by 2012 construction output has undershot its optimum performance by 50%. The causes and consequences of this decline are explored in the report.

Reasons

The report shows that there are many reasons for this change. In 2010, as private sector work dried up, the State became the construction industry’s largest client. Since then, as the recession has continued, public capital expenditure has fallen, resulting in fewer public building and civil engineering works reaching construction stage. Indeed, the report suggests that investment in public infrastructure such as roads and transport will fall from €4.4bn in 2010 to €2.9bn this year. Overall, the State’s contribution to the Irish construction sector is likely to account for  less than €3.8bn – 51% of total output. Thus, because of the important link between new construction output and Government spending plans, the international economic situation, as well as the continued presence of the EU and IMF in Ireland, will have a large impact on the future of the sector.

The effect on surveyors 

Within the private half of the industry, work by building and quantity surveyors for commercial clients has also declined, largely because of a lack of finance. Some 25% of building surveyors noted that in 2012 their clients had cancelled or severely delayed commencing projects because of an inability to secure funding. Those building surveyors working for residential clients saw a similar pattern – 22% said that lack of finance had led to the cancellation of home repair work.

The next 12 months

Looking to the next year, it is extremely unlikely that over 5,000 residential units will be built in Ireland, the vast bulk of which will be one-off self-build projects. Until consumer sentiment towards the property market improves, there will be no developer-led activity. This lack of new stock will undoubtedly have further negative consequences for the wider property market, especially in areas where there is a lack of good quality property for sale.

Similarly, while the perception of an overhang in the commercial and industrial market exists, it is unlikely that new building will take place. New developments will be driven by foreign direct investment and small-scale domestic investment.

The state of the profession

As noted earlier, the report was supplemented through a survey of quantity surveying and building surveying practices operating in Ireland. This survey only gives a snapshot of a moving profession, but it gave the Society a detailed understanding of how the professions fit into the wider industry.

Employment

Overall, employment in quantity surveying and building surveying practices has halved since the peak of the industry, broadly in line with the downturn in the sector. Job losses have been more severe among junior and student surveyors than among senior surveyors, and it is evident from members’ responses that the bulk of the losses took place early on, when the recession in the industry first hit. Since then employment has plateaued. Looking into the remainder of 2012, projections from members suggest that employment will remain flat, but those companies with a healthy pipeline of future work predict taking on more staff later in 2012 and into 2013. Others, however, have reported that as work is completed, their pipeline of work does not look like it can sustain new employment.

Conclusions

The purpose of producing the report on the state of the Irish construction industry was to understand more about the underlying factors that shape the industry, and therefore the chartered surveying profession. As the public sector now accounts for over half of the industry, changes in public spending plans and the wider economy are more important to the sector than ever. The industry is half its optimum size, but it arguably has more diversity within it than when it was dominated by the new housing sector. The challenge for the industry and for government is to grow each of those component sectors, to promote diversity and dynamism in an industry that can assist economic recovery.

Layout 1Peter Stafford
Peter is Director of Policy & Public Affairs with the
Society of Chartered Surveyors Ireland.