Search This Blog

Friday, 23 March 2012

Workers and employers in Dutch building and construction industry cry ‘help’ to parliament, in order to keep this top-heavy industry afloat.

I’m just trying to survive
Pay my bills and stay alive
All the world’s problems ain’t my fault
I take it all with a grain of salt

The joint associations of workers and employers in the building and construction industry (B&C) have sent a pressing letter to Dutch parliament in which they ask for more government aid for this industry in distress.

As this was a very long letter, I can show here only the highlights of it. Inquiring minds can find the integral letter behind the link. The letter is in Dutch, but Google Translate can help here.

  • Residential and utility building will contract by 3.5% in 2012
  • There will be only a minor recovery in 2013 and further; no significant growth is foreseen for the coming years
  • Thousands of workers in Building and Construction already had to leave this industry out of necessity or will probably do so in the coming years
  • The price difference between workers with a fixed contract and freelancers has become so big that the pressure on people with fixed contracts is soaring; labor is more and more seen as an expense and not as an asset for the company
  • The further flexibilization on the labor market is worrisome. There is a non-level playing field between people with fixed contracts and domestic / foreign freelancers. Normally, freelancers ought to be more expensive, due to elevated risk and insurance expenses, than people with a fixed contract, but in the current market the contrary is happening.
  • The vigour in the residential real estate market needs to be improved
  • Reduction of Mortgage Interest Deduction (MID), flow through to more expensive housing for tenants living in cheap houses, alternative ways of financing and a permanent reduction of the conveyance duty should not be considered taboos.
  • Solutions should be chosen for the long-term and not be ad hoc. There should be an interconnected package of measures that should supply trust, entrepreneurship and vigour in this tormented industry.
  • Things need to be sped up as many companies in the industry are defaulting, while being forced to fire their personnel.
  • Although B&C is not considered a key industry in The Netherlands, this industry is facilitating the key industries in The Netherlands. The government and especially the Minister of Economy, Agriculture and Innovation (EL&I) should play a more active role in connecting B&C and the key industries. Active involvement does not only generate volume, but triggers the urgently desired innovation in the building industry.
  • If the low, 6% VAT rate for painting and plastering for real estate is increased to 19%, this will cost 5000 painters and plasterers their job and it will stimulate undeclared work and tax evasion. The painters and plasterers already suffered from a few dozens of percents in labor reduction and revenues and cannot bear a further deterioration of circumstances as a consequence of the higher VAT rate.
  • The MID must be maintained for the short term, to improve the very low consumer confidence and can only be abolished if the housing prices would not drop, purchase power can be maintained and housing expenses would drop.
  • Renovation of post-war housing should be a key success factor for the B&C industry. Interference of the government is crucial.

Although I did my best to mention the most important conclusions of the aforemention pressing letter, this letter is a must-read for everybody that wants to know more on the Dutch Building & Construction industry.

Not because it is such a good letter, but because of the ignorance that speaks volumes in every paragraph. To be honest: I symphatize somewhat with some paragraphs of this letter. 
  • There should indeed not be a non-level playing field between people with fixed contracts vs domestic and foreign freelancers, that are under enormous pressure to reduce prices and run substantial pension and health risks.
    • However, if the fixed wages of their personnel are too high for B&C companies to survive in these trying times, you can't blame them for looking for cheaper labor.
  • And the B&C industry is indeed not aided by the government introducing short-term, ad hoc solutions like the Dutch government does now.
On the other hand, I can’t believe that the workers and employers in this industry don’t want to see that we have both a residential and commercial real estate bubble in The Netherlands, in volume (CRE) as well as in price (RRE).

Although the building and construction industry suffered from a considerable loss of jobs during the last years, there is still massive overcapacity when you consider the following facts:

  • the Dutch housing market will probably remain troubled for the coming five years, considering the extremely slow tempo of debt destruction and housing price decline
  • there is a structural vacancy in CRE of more than 10%.

  • In the period 2006- 2010, there was only a slight loss of jobs (see chart). More recent data is unfortunately not available yet: 

Labor Volume in the B&C industry from 2006-2010
Source data:

Therefore the stance of the writers of the pressing letter is ‘assuming the ostrich position’ at its worst:

  • Nobody believes anymore that nothing will happen with the Mortgage Interest Deduction

  • You cannot maintain the housing prices at the same exuberant level, while at the same time lowering the housing expenses and remaining purchasing power at the same level: this is housing utopia of the worst kind and it will not happen.

  • You cannot ask the government to subsidize wide-scale renovation of post-war houses, in order to save the whole B&C industry. The government does not have and should not spend this kind of Keynesian money to save one industry, while other industries are in need to.

  • The differentiation in high and low VAT rates for products and services is already very arbitrary and should not be used to save an industry, if this is the only way to save it. When there is an overcapacity in painters and plasterers in B&C, then these people should be helped to find other work that uses their knowledge and skills. Maintaining expensive, but useless jobs is bad for the economy and thus for a country, as it stops innovation and economic change.

  • No tenant will voluntarily go to a more expensive house, if he doesn’t need it.

  • Forcing tenants to buy an expensive house or to move to a more expensive rental house will remain a no-go zone. 

Summarizing, I really symphatize with the workers in the Building and Construction industry and I think this industry should be helped by the government with a changing and reorganization process.

However, I see this pressing letter from the stakeholders of this industry as a ‘letter from Utopia’. Ignorance is bliss indeed.

1 comment:

  1. Great article! I will instantly grab your rss feed to stay informed of any updates.

    Excellent work and much success in your business endeavors! This is such a great idea.