Building sector: incentives to stimulate recovery

This article proposes an analysis of the actions and resources that the government has mobilized to encourage investment in construction in both the residential component in the infrastructure, and analyzes the economic situation of the sector in which the developments are affected by the credit crunch and the need to curb spending public.

Never before in recent months, the construction industry has been the focus of political debate as leverage to boost the economy and reverse the negative cycle, it has strong relevance both in terms of incidence in the GDP (nearly 11 percent) than in terms of employment (about 8 percent of the workforce). It is estimated that every billion invested in building an active turnover of about 1.8 billion and generate employment growth of at least 23 thousand people. One example is the anti-crisis economic policy implementation in the United States providing for a federal investment in public works for 131 billion (in addition to the ordinary state resources). The Italian government - albeit with the known difficulties of Financial Statements - continued to declare that it will revive the market in both residential public and private than in public works. But, from a statistic published in the Wall Street Journal in the face of a "stimulus" in the U.S. estimated 2 percent of GDP was limited to mobilize resources for the 0.2 per cent with a "plan" party with over a year of delay and financing the works of the "objective law" provided with the "dropper".

In reality only a little more than 2 percent of expendable resources in 2009 will be earmarked for investments in public works compared to a 53 per cent allocated to current expenditure and a 40 percent taken away from the payment of interest expense on the debt.

According to the "Fourth Report on the implementation of the Objective Law" prepared by the Chamber of Deputies and the Cresme have been implemented, or will be by the end of 2009, 51 works "strategic" of the 228 that were originally of the program - in value - 9.5 per cent of the total, while 59.5 percent of planned interventions is still in the design phase. As for 2009, the infrastructure funds approved by the Government are worth little more than 10 billion (of which even 2.5 for the priority of the "Objective Law") almost all found by reprogramming of funds Fas. It was also added a list of small works immediately cantierabili for 825 million that can be summed to 1.2 billion for school building projects and prisons (and 4 others funded by the Abruzzo decree to rebuild after the earthquake last April).

An analysis of the public finances is clear - for 2008 - a shortage of investment in construction: a little over 153 billion, accounting for 10.9 percent of total loans of GDP compared to a European average - in 15 countries - 11, 7 percent. Of these, calculates the association of Reeds 18.7 percent involved public works, 54.4 housing (25.8 percent new interventions and redevelopment of 28.6 percent) and 26 , 9 percent for private non-residential construction.

An update on the available resources can be drawn from Annex infrastructure of the budget document (Economic and Financial Planning Document) 2010-2013 gives the green light to a range of infrastructure at the end of the year should be raised to 14 billion the value of work in construction site, according to estimates of the Ministry of Infrastructure and Transport. Among the priority projects of the budget document are in addition to measures to promote Abruzzo (four billion), the rail ac / av Milan - Venice, the "package" Expo 2015, the construction of the new passes of Brenner and Frejus, the 'railway axis Napoli - Bari, the hub port of Augusta, Taranto and Brindisi, the bridge over the Straits of Messina ...

Among the great works amounting to more than 100 million the first intervention that has been cantierato (last July) noted the highway Brebemi for a total value of 1.7 billion was funded from the formula of project finance.

In respect of the residential component something seems to "stir" with the final release of resources to be devoted to the "plan" with which - supports the ministry of Infrastructure and Transport - you can make a hundred thousand housing in five years with an initial intervention 200 million which will become 550 with the next appropriations.

A new impetus from the point of view of the mobilization of resources, it could come either from the public purse (through effective / efficient programming of the funds made available by Pon programs - national operational plans - and Por - Regional Operational Plans - funded European Union which, if not scheduled as soon as possible, the risk of having to be returned) and the private sector incentives adequately project financing and other forms of ppp come to affect - as of 2008 - about 20 percent of the total public works banned in Italy.

 

The effects of the recession on construction

Although the construction industry is a "counter-cyclical" by definition, the global recession triggered in 2008 has generated considerable effects on the latter and also swept both components of the application, both the public and the private. The first is forced by cost constraints arising from compliance with the rules imposed by the Stability Pact and the need to rein in a deficit / GDP ratio came to 9.3 percent in the first quarter of 2009, the highest value of the last ten years, the second is affected by the risk-averse (and therefore investment) by firms and households and the credit crunch banks which, in reference to the construction sector, results in a dual effect: first, direct , consisting of a significant drop in funding for investment in construction. A second, indirect, represented by the close of the banks in the provision of loans (respectively less than 8.6 and less than 13.9 per cent in the residential and the non-residential compared to a year earlier). Then there are the non-payment or delay on the part of the public administration that go to further burden an already significant financial strain of companies.

A particular worry is the downsizing of residential (up to 2007 engine of development in the sector) that discounts - most of public works - the distortions that the financial market crisis is having on the real economy for 2009 is expected to reduce 11, 4 per cent over the previous year in housing investment and new construction (minus 19 percent) to be recovered (minus 4.6 percent). The downsizing of the offer is combined with a drop in demand: the real estate market, after peaking in 2006 (around 850,000 trades), from 2007 started to contract (minus 4.2 percent) to move back in 2008 the lows of 2001 with 687,000 homes (less than 15.1 percent) transaction object.

 

Conclusions

For an effective relaunch of the industry - so that it has an effect coupling of the economy at a time of difficulty and not zavorri the state budget escalating public spending - some corrections are needed in the system such as:

- A government that knows how to program interventions consistent with budgetary constraints and the logic of priorities and strategic;

- Private entrepreneurship that knows how to seize business opportunities by accepting remuneration of risk capital in the long run (and not in the short as is typical of the housing market, but when it "pulls");

- Finally - last but not least - a credit system that knows how to not only assess the risk but also take the responsibility of those who, acting as a "mediator" between public and private companies.

Joseph Pedeliento

07/23/2009

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Translated via software

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Source:

Italian version of ReteArchitetti.it