Thursday 23 November 2017

Get the cost base right, work hard and boost productivity

There are great opportunities for our future and our children's future, but we must plan for it, writes developer Michael O'Flynn

AIMING HIGH: Developer Michael O'Flynn feels there is much still to be done to revive the property sector in Ireland.
AIMING HIGH: Developer Michael O'Flynn feels there is much still to be done to revive the property sector in Ireland.

As we exit the Troika bailout, it appears that we Irish have, at last, reasons to be optimistic. While we haven't overcome all of our problems, there is a sense that we are on a road to recovery and that we can plot some aspects of our own course.

If that is the case, it is worth asking what the remaining milestones on that road to recovery might be and how we can navigate these.

I am concerned that there is a growing expectation of a new dawn, and, whilst I'm not suggesting that it is going to be a false dawn, I would be very concerned about an expectation that everything is about to change – and inevitably for the better. There are very few things in life that are a safe, one-way bet.

Some of the key ingredients of any recovery are fairly traditional values that we need to find again and start practising: working hard, allocating our resources to the most important areas of our economy, tackling costs, and bringing a discipline to the way that we approach problems.

Hard work and greater productivity are the first measures that we must foster as we navigate the way towards recovery. In many parts of the traded or private sector, a 45- to 50-hour week (if not more) has practically become the norm. The international data is there to support the fact that efforts need to be made to bolster consistency in the economy in terms of pay and level of effort, in order to ensure that as a whole we can compare favourably with our international peers. I hope that the exit of the Troika won't stop us continuing to make ground here. If we work hard and in a smart manner, I believe that we will create great opportunities for our country and our children's futures.

Looking next at the allocation of resources, I feel we are still spending far too much money in some areas of our economy and not enough in others. Education and health come to mind, for example. We must look after our elderly and we must look after our young and their future. To finance this we need a much tighter focus on our overall cost base as a country.

I believe we should consider whether there is any consistent and real benchmarking of what we collectively produce, and a good, reliable measurement on performance. If there is, I rarely see it highlighted. The macro costs of running the State are still out of line in comparison to other countries of our size and certainly to larger countries, even allowing for any economies of scale. There are enormous savings which could be delivered across a whole range of State services and supplies if the will is there to foster a more efficient model.

For example, great plans are in place to reduce the number of local authority administrations from 88 to 31, but progress is frustratingly slow.

I believe we would get a better and more consistent service from a rationalised number of authorities, which would then allow for more rewarding careers for those public servants involved.

I believe there is an urgent need to create a new national zoning authority to match zoning to demand and planning policy nationally.

This new authority should also have an infrastructure delivery remit that would enable an efficient implementation of national zoning policies.

Giving a bit to everyone everywhere hasn't worked, and I think this is a big lesson from the past from which we must learn.

This structure would be a win-win for everyone involved, especially consumers, who are the end users of the product.

We need a new discipline in the way we do business going forward.

While having the Troika dictate policy didn't sit comfortably with many Irish citizens, I suspect that many of us in the business community have a respect, grudging or otherwise, for the disciplines and supports that accompanied Troika assistance. Most businesses need to up their game considerably here, including my own industry.

Turning to the industry in which I have spent my career – property – there is a lot of work to be done to ensure that an effective structure is in place. Those connected to the financial and property world are still coping with this crisis and the aftermath will continue for some time to come.

I think that the commencement of a road to recovery comes with the simple recognition that you cannot have a functioning economy without a functioning property industry. The two are inextricably linked. Ireland needs industry participants who are capable of designing and delivering high-standard buildings.

Apart from the cost base, the other key factors on the road to recovery are funding and equity, as without these you don't have the key raw materials in place to return to a normality within which the citizen can feel comfortable and property can be produced in a sustainable and economically efficient manner.

I wish it were otherwise but from where we are starting, strong lending targets appear to me to be a must if we are to get to any kind of sustainable and well structured property industry.

What is important is that we have an adequate and competitive supply of property to meet market needs. We can see these needs a bit more clearly now in some sectors –family houses in the main cities and offices and factories for large inbound overseas industries for example.

We must avoid mistakes of the late Eighties and early Nineties in terms of inadequate anticipation of infrastructure, housing and advance buildings for inbound industries and take account of the long lead-in times required to deliver those services.

We can only have an adequate and sustainable supply if efficient property companies and funders return to health.

While there is still a long way to go here, I believe we are beginning to see the right elements coming together. With hard work, good resource allocation, low costs, and the proper discipline to the way that business is done, I am quite optimistic that our industry can make a real contribution to the national recovery.

 

Regulation : The dread hand of inflexible government doesn't inspire confidence

I AM amazed sometimes at the constant focus on sales prices as indicating the health or otherwise of the property industry.

While they are undoubtedly important, the cost base is an equally important factor in ensuring that a proper recovery takes place. The net of both decides where we will have an adequate supply of new product to attract employment and build homes for citizens.

Much of the cost base of my industry is mandated by the Government. In very few other industries does the State get to specify exactly the products and components to be used (through the planning process) but also the combination of building regulations, development contributions, social and affordable obligations, VAT, mandated labour rates and windfall tax on profits means that the industry starts to look very inflexible in terms of cost.

That inflexibility does not augur well for an economy seeking to follow the road to recovery.

Sunday Independent

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