With a week gone by since the Yorkshire Property Awards and one week
until the Yorkshire Residential Awards, it feels like a time to be celebrating.
Commercial units are fast moving to an under supply model and residential units
are springing up for students through to large families but a question has been
pondering on my mind recently, “Should
the government intervene to aid housing demand?” It’s a broad question and
one I wonder about often. The first point people usually say is surely they are
intervening, but I’m talking more serious action.
They just announced they wanted 1,000,000 homes built in 5 years but
HOW, I mean seriously HOW! Action could be as extreme as direct intervention
through local government or using housing associations or indirectly by cheaper
funding being available. The government can borrow at very cheap rates for
infrastructure and therefore by using this power to aid development could speed
projects up or deliver them on a much larger scale. But something has to happen
above and beyond the current measures.
Between 2011 and 2014, the NHF reported that only 457,490 homes were
constructed. Only slightly above 100,000 per annum and now we’re moving towards
200,000 per annum. I’m only 32….and I can’t remember a coherent housing policy,
more a bolt on of theories and suggestions where some work and some don’t but
while housebuilding sets ambitious targets the world of construction is hitting
a bumpy road.
It’s not just residential facing a bumpy period. Recently it was
announced, following research by Barbour ABI that the value of projects being
put on hold had almost doubled in the last 18 months. Quite a contrast to an
economy that is growing and a construction sector that seems to be recovering.
It would appear that as the legacy projects are completing and prices are being
submitted for new work (prices under current market price, not legacy price)
that customers are simply stacking up the finances and saying no. Feels quite
ironic for times to be good for a construction business only to be put on hold
because they seek to increase their prices!
The market is changing and costs, particularly employee costs, are
rising. This is thought to be reasonable double digit growth and ultimately
this is going to be passed on to the end user. This is at the reasonable end.
It’s public record that BAM walked away from a development with Intu over cost increases
of 48% being un-agreed.
The rapid jump in activity in construction in 2013 seems to be
manifesting itself now with the rise of construction contract prices, which is
a real threat to the sustainability of construction growth. The question now is
will this be a small bump in the road or a major up haul of the road network!
Now sector forecasts indicate long term growth and I’ve lost count of how many
cranes I can see not only in Leeds but across the region – the desire of some
is seeing projects keeping going, I mean surely it will be okay?
There has been a prolonged period of lower costs so that is why it’s
such a shock to see price rises of 15-20% - but is it justified? Well remember
inflation returned a while ago now and there was little contractors did to
increase costs (rather absorb the losses!) but maybe a scaled approach with an
open honest approach from a contractors could help ease the changes.
So what we have is a commercial market that is improving yet more and
more projects are being put on hold and a residential market that is
overheating yet can’t keep up with supply. Eventually it will be accepted that
project costs are increasing, not at the above rates initially but some happy
ground in the middle. The residential market will not meet the targets set out
by a long shot unless action is taken quickly.
Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to
property and construction.
Enjoy
the weekend
Lee
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