Can robots solve the housing shortage?

Technology is changing at a very rapid pace, developing current and future strategies for adoption in the construction industry can be a challenge to say the least. But being able to adopt technology in the right manner is key to growing businesses in the construction industry.

For those who work in the construction sector there are two words that must have been repeated over and over again in your world – “Skills shortage” – but what does this actually mean (apart from the obvious!). Well in simple terms how can we built more with less people to build it? If a shortage of skills cannot accommodate what we currently construct how can you increase house building or commercial units. We need a change of pace, maybe even an embracing of technology.

Let’s start at the beginning – you need labour to construct but it is in short supply so how do you fill the void – apprenticeship programs will help short term as will workers from overseas but you can argue these are not long term solutions to the problem (particularly when you overlay the cost element). So maybe we could do something that increased output without the need for large resources being available – why not build the resource?

For a number of years Japan has used off-site construction methods that have limited the amounts of skills it needs in the sector but has still allowed for more houses to be built that in the UK. The issues in Japan resonate with a lack of skills due to the aging population. This method of building a home in a factory is starting to come through in the UK with at least one Yorkshire housebuilder adapting technology to allow homes to be manufactured in a factory and then shipped to site allowing for minimal on-site skills requirements.

The Japanese story is an interesting one with examples of advanced warehouses being 77% more productive than normal warehouses despite having half the staffing levels – effectively robots are handling around 65% of the activities. The cost savings over the life of a factory could quite easily be significant.

Robot bricklayers have been developed overseas. A prototype can build a house in two days, according to its inventors. However, even they admit that it will probably be a decade before its use is widespread on building sites. So this kind of techno-fix, while undoubtedly enticing, won’t be an answer to the UK’s immediate housing challenge but similar investment could support the industry longer term.

So does the UK need to listen and adapt. Yes of course it does. The construction industry has seen little increase in productivity over the last 20 years while if I think about a number of manufacturing businesses, they have invested heavily in technology and seen productivity increase significantly, in fact without it they would no longer exist. The second issue is construction workers demographics highlights an aging workforce and due to lack of investment there is a clear issue in that a large proportion will soon retire – who will replace them. Will innovations such on-site automation and robotics really make enough of a difference to the demand for skills, or is UK construction growth doomed to languish due to the shortage of skilled labour available to meet demand?

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

The rise of the property business

It’s a sad day when you realise that if I had invested in the listed housebuilder sector at the start of 2015 I’d be around 40% richer at the end of 2015. But there is no surprise with such strong demand for housing, low interest rates (which are expected to remain low for the rest of 2016!) and favorable government policies like Help to Buy. An analysis shows it’s not just external factors aiding this performance, profit margins rose also to 11.7%, which is higher than the 11.2% high of 2007. More indication of the top of the market nearing?

 

In 2015, housebuilders outperformed all other equities in 2015 with a 40% rise in value - the next-best-performing sector was construction and building materials (25.1%) – can we see a common theme here, while real estate investment services (REIS) posted a 15.5% rise. Clearly property, in 2015, was where to put the money and so far in 2016 this is continuing. We now have four housebuilders in the FTSE 100 following the admission of Berkeley and the recent listing of Countryside (albeit at the bottom of the price range).

 

Looking closer though, housebuilders are benefiting pretty well from a much wider point – between 2011 - 2014 only 460,000 homes were built compared to the 974,000 that were required. In 2015 we were around 70,000 short of what most experts think was required. So we have a supply shortage but are housebuilders contributing to this? Well I can’t speak for everyone but from conversations I have had with small and large housebuilders they want to build more but are restricted due to varying reasons – financing, skills, planning etc etc. As long as the construction activity lags behind demand, prices are likely to continue to rise, exacerbating the current affordability crunch and potentially slowing down the market.

 

Though it is not all doom and gloom. For those able to scrape together a deposit a new study has shown that this could be the best time of year to bad a property bargain - you could slice an average of £69,000 off the price by buying a property at this time of year compared to August, says My Home Move. I really don’t know about you but I certainly couldn’t afford a house in January/February – still paying off Christmas, let alone legal fees and stamp duty!

Planning, touching on this earlier, is an ongoing discussion with legislative controls increasing in recent years. So much so the government has commissioned a “Red Tape Review”. But why is this needed – the main issue I hear is unnecessary delays – it typically takes between 12-14 weeks for a planning decision to be reached, but similar to the endless excuses for train delays there is the same here with system glitches and poor communication. Now a large housebuilder, although frustrating to have a delay, will no doubt have multple planning approvals in so it’s not the end of the world. A SME housebuilder may have one or two in the process so a delay can lead to significant financial difficulty.

 

So why not increase transparency of the process and make it consistent across the board. The standards need revising so invest in clearer standards of design and technical specifications and if you do refuse planning allow for a speedy fast track back to the top of the queue if you amend the points raised. The final point is to invest in the process. The delays come from overworked teams – there needs to be resource or innovation to reduce workloads – automation for part of the process maybe?

Whatever way you look at it you can list pros and cons – whether housebuilders, people, banks and so forth – the truth is that until collectively a plan to resolve UK housing is put in place then we’ll keep on having the debate.

 

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

Will Brexit impact property and construction market

 

Brexit – a blend of the words ‘British’ and ‘exit’ which refers to the possible of Great Britain leaving the European Union. This word is on everyone’s lips; “Land Securities chief executive says Brexit would create shock in property market” and “JCB boss says UK should not fear EU exit”.

 

So enough of the general points, in a strange scenario the construction industry has been reluctant to get involved in the debate over whether or not the UK should leave the EU. Now in truth a large section of the industry only really supply their services locally but more broadly a number are seeking to expand overseas. Although a number operate solely locally, the clients they service could either themselves be from Europe or even funded from within Europe.

 

The terms of engagement by David Cameron with Europe are in the final stages and it is widely expected that in this month we know what has been agreed to allow us to make our final decisions. As someone who has only ever known life with the EU it is hard for me to know whether in or out will be better. Though like 85% of construction and real estate companies, as surveyed by Smith and Williamson, I think continued membership in the EU makes better sense.

We are living in a world where there is the need for greater collaboration. The ever changing economic environment of which large parts are out of our control means why would we add something to the agenda that is in our control. The current consensus is that we would be damaged if we leave the EU but to be honest how do we know? Will Europe simply cut us off if we exited? No. But there would be a need to renegotiate everything. So simply put anything that damaged the UK economy is not going to be positive for the construction industry.

As a mathematician I love a statistic so here we go. The CBI has estimated that leaving the EU would cost us about 4-5% of GDP, while the Centre for Economic Performance at the London School of Economics has estimated 9.5% and of course the reverse argument by Open Europe at 1.6% growth as a result. No a concern to me would be the inward investment from the EU – would it slow down, stop or continue like a juggernaut? Well I think irrespective of all this people invest in London, in the UK, not because we are in Europe. Now only if the departure from Europe causes such economic upset that inward investment slows down would it seem to me to be a worry – but that is the million dollar question, will it? However there may be less of a desire for businesses to want headquarters in London and may opt for Paris, Amsterdam etc. to be within Europe.

I think whether you are for or against a Brexit you need to think more broadly than your own personal view – what is best for this country. We all want growth and prospects for ourselves but also our next generation.

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

The future of "sink estates" has been decided?

Not long ago the Government announced plans to radically transform run-down estates. The plans were understandably welcomed with a hint of caution by the property industry. It’s a double dilemma – you are getting a sparkly new home but it dawns on you that you live in one of the most run-down housing estates in the UK. In total 100 so-called sink estates will either be renovated or completely knocked down all for around £140m. This to me is a good attempt by the Government to revive areas of some cities but the detail of what will be built in their place is sketchy – what we don’t want to see is reductions in estate sizes further adding to the housing crisis.

Born and raised in Sheffield, I know too well that there are certain areas of the city with some very old council estates that are in need of regeneration, but that process must treat existing residents fairly and it is good to see guarantees will be provided to existing tenants – wonder where they will be housed during the construction phase? Has this even been considered? Let’s not kid ourselves though – this is not going to be as easy as the Government is making out but when done properly (like the award winning Park Hill development by Urban Splash) it can be stunning and completely regenerate an area.

In a recently published report called Completing London’s Streets, it found that at least 54,000 homes and up to 360,000 additional homes, could be accommodated within existing estates through a new approach to estate regeneration. The numbers speak for themselves and could create something really special – a ‘complete street’ so to speak with a combination of terraced houses, mid-rise mansion blocks and refurbished towers integrated into a human-scale streetscape.  

This approach is something I’ve previously commented on. By taking existing sites – whether “sink estates” or public estate – additional housing can be provided at reasonable costs. The city of the future needs to prepare for the megatrend that is urbanisation! A key word is “reasonable costs”.

But strong population growth is putting pressures on infrastructure, the environment and the social fabric of the city. The number of people living in urban slums has risen by a third since 1990. And whilst cities occupy 0.5% of the world’s land surface, they consume 75% of its natural resources. Cities cannot keep growing in the same way without becoming unsustainable. City leaders will be presented with difficult choices if growing cities are to remain liveable cities. City leaders need to develop a new city or replacing the underlying parts of its current design – look at Masdar or Migaa as examples.

The needs of cities is evolving. Land is a limited resource in the UK – by regenerating what is already present to provide more housing but at an increased level of quality it feels like this is a solution that needs addressing and progressing as soon as.

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