A Farmer's opinion on construction

There has been a lot of “shock” coming out of the recently released Farmer Review but in truth for once a “review” has done just that, turned the stones, poked the fat and actually highlighted actions and low and behold people seem to agree with it. It simply is described as a “dire state” of the industry. But on the brighter side, the solutions come thick and fast and one day people will look back and see the Farmer’s Review as a key turning point in dragging the industry into the 21^st Century.

Now I’m young(ish) in the grand scheme of things but it’s safe to say this Review is not the first, but hopefully the last for a while. Reviews have come and gone but actually the striking part of this one is given in the title “Modernise or Die”. I always remember reading the Construction 2025 Review which went on to praise the industry, and don’t get me wrong – yes we should, it has shown great resilience and produces high quality product but this latest Review is bold and courageous. The industry has talked about diversity, talked about modern construction techniques and many many more things but the move towards any is far from quick.

So what’s it all about. Well the Review was jointly commissioned and was always going to be a challenge of how can you create something tangible to be followed, particularly given the many challenges being thrown at the industry now and in the future. Now then, root cause:

·        Low productivity – flatlined versus 50% increase in manufacturing;
·        Poor predictability – only 1/3 of high-rise buildings are completed on time; and
·        A split industry in terms of margins, financial fragility, innovation investments and public image – everyone’s made a construction joke about the builder.

So what are the key themes:

Skills crisis

The overall report concludes, unsurprisingly, that there could be a decline of 20-25% in available labour force within a decade as older workers retire with no replacements due to significant under investment in skills. The challenges Brexit creates are unknown, however given the pressure to control the borders, there is a sensible question of will we be able to bring in large volumes of workers from Eastern Europe (say) like we did in the 2000s? It is critical we find a replacement for these skills from homegrown talent to ensure this is not an issue.

Off-site construction

How technical is construction – leading on from the skills crisis is the question of should the skills be adapting as the industry embraces innovation and technology. Should we now build off-site in a factory? The industry simply has not embraced the future like other industries and it is holding the sector back and losing growth potential due to rising “traditional” costs. It’s not a one size fits all but with Legal and General investing in modular house facility in Sherburn and Citu commencing construction on their manufacturing site (plus many more) it is clearly viable and broadens the skill base away from the “traditional” construction person to bring in people with manufacturing skills.

And all this leads to the recommendations which are summarised by Building here http://ow.ly/W55r305zpZO but the ones that catch my attention are ones previously mentioned in my blogs:

-        Bring innovation into residential sector and fund this
-        Publish a pipeline of housing developments
-        Re-engineer education sector to produce the right skills

Above all for this you have to change the governing bodies and completely refresh the sector to allow for wholesale changes to be made. You need to push and further become innovative, individually or colletively – think about centres of excellence, a great example is a Northern business that has a CoE in Northern Ireland but uses them on English projects in that area – excellence improves efficiency! Above we discuss manufacturing, well why not pre-requisite this for Government schemes or even the use of apprenticeships – really take simple ideas but don’t give people the options any more.

The options are available to those who want to change. The idea of a levy imposed on construction for those who don’t modernise feels harsh and certainly something that would be challenged but is it not the old metaphor of “carrot & stick”. The stick being the levy. BIM was imposed in a “use it” or miss out way and that seems to have worked. I’m not for more cost on businesses as I feel it sometimes hinders those you need to support but if carefully constructed and monitored then this could be a real way to change an industry effectively living in the past.

I conclude simply with a concept which to me demonstrates a change in mind set that Farmer is seeking. The concept of a Low Impact Development has been created, incorporating city farms, on-site power generation, green roofs and developed on brownfield sites. The houses are affordable, managed by Community Land Trusts, and set up in areas of higher infrastructure – near public transport and walking & cycling routes to key areas of the city. By developing low carbon and instilling a recyling mentality can create something special. None of this is revolutionary but certainly different. By developing LIDs in cities will really create something special, a community for people to be proud of. If you are in doubt of what we are talking about, simply visit Lillac in Leeds.

The housing market looks to be heading into Autumn on firmer footing

The lovely people at RICS produce a UK Residential Market Survey and the recent copy makes for good reading with the headline for me being “the housing market looks to be heading into autumn on firmer footing”. The driving force behind this prediction is the good old buyer – enquiries are on the increase and the rationale is that enquiries are on the up, therefore the market must be. A cynic could say well they are only enquiries and what is the conversion rate?   Let us not forget that supply is still tight and therefore the increase in price indicated by the survey is not a huge surprise, in fact everything happening seems to be supporting the prices increasing further – but when does the bubble start to deflate (note – not pop!). This overheated market that people discuss is largely driven by London and the South East and in truth (and from conversations in the market) it would not be unexpected if London saw a price reduction in the next quarter reflecting nervous foreign investors and the push and pull mentality of policy between affordable and social housing and high end glamour. In a modern world can we simply not have both?   In contrast to this report, a large estate agency has called for the government to cut stamp duty citing a significant decline in interest from buyers had led to a fall in house prices in September. This 1.1% decline is a warning of the market says Haart. But what this does say is even the industry cannot agree of what the market is doing.   Prices are rising but not consistently across the UK. Scotland now is the lowest riser and in fact the difference between the price rises in Scotland and the rest of the UK is the widest it has been since 2005. Maybe worries about Scotland breaking away from the UK are taking their toll?   The UK population is growing, and people need a place to live. However, many homeowners - especially first-time buyers - are finding themselves priced out of the market by the rising prices. Despite Government-led initiatives like Help to Buy, first-time buyers are finding that they're having to find vast deposits to be in with a chance of getting on the housing ladder.   So what is the Government doing? Well in September 2015 it was announced by the then Housing Minister Brandon Lewis that they wanted to build a million new homes by 2020, despite many saying the aspiration was too low. It is considered too low due to years of housing completions being below even the 200,000 target. Bodies disagree on the number of houses built each year but one thing is consistent – they are below the Government target and the NHBC target of 250,000 per annum.

 

 

 

 The numerous factors causing a shortfall are simply not being addressed:

• Construction skills shortage – since many skilled workers retrained during the recent recession. The Government in January 2016 challenge the construction industry to train more home-grown talent (having become dependent on overseas workers) – though there was no incentives to do this and certainly little support. In fact with tax changes, such as apprentice levy, further costs are being brought to the sector. The naming of foreign workers would have been an administrative burden too. In fact a recent RICS survey shows wage increases in the industry are 6% (three times the national average) as the knock on effect of low levels of labour. The solution – introduce tax breaks for training to incentivise the sector or set up joint academies.
• Planning problems – long blamed as one of the main reasons – slow, sluggish and bureaucratic. The National Planning Policy Framework was implemented in 2012 and this shows a steadily rise in detailed planning permissions since 2011. The finger now seems to have been pointed at housebuilders for holding back on buildings. The solution is clearly to determine a way to monitor the process – each side blames the other.
• The rising cost of land – a study found that residential land prices between 2000 and 2007 rose by 170%, compared to house prices which rose by just 124%. The effect was to make some sites not financially viable. The solution is the industry needs to embrace ways to make construction cheaper – like off-site construction.  

• The lack of social housing – local councils use to build more houses than the private sector, but that significantly reduced over time. Housing associations have seen an increase but not enough to fill the void left by local authorities. The solution is to release restrictions for building by both and then for them to partner in the private sector to bring forward schemes.

• And finally fewer small housebuilders – it is too early to say whether recent Government initiatives will help on this front with an estimate of less than 3,000 across the country now largely due to financial restrictions and availability being key issues to their fall. The solution may have already been provided but it is clearly support them.

There are clearly a number of factors and each one requires differing action but can easily impact each other. Three areas I would certainly tackle are prioritising spending on housing (and recent announcements may aid this) but it should be at least £2bn per year on affordable housing. Launch a National Housing Investment Bank giving loans and guarantees for new homes and lastly increase spending restrictions on local authorities.

Housing - state of the nation

After a few months of watching the world grapple with the reality of Brexit (i.e. business as usual so far) and the implosion of pretty much politics as we know it, it felt appropriate to discuss the world of housing. Now I can summarise at the start that everything that has happened in recent months has done nothing to change the simple fact – there is a housing crisis in the UK across a whole spectrum of issues as highlighted by the recent #HousingDay.

To set the scene:

·        The Government made a large number of promises as part of its Autumn conference but will they help?
·        House price growth seems to have slowed further but longer term it’s still going to keep going up; and
·        Take your earnings and multiple by 10….that’s the house price!

It was a somewhat a welcome sight to see a conservative Government finally unveiling a plan that could tackle housing but most importantly it seems to appear that it’s Theresa May’s to do list – that, Brexit and possibly what colour to re-do  the walls in the Houses of Parliament – magnolia?

The key policy change was the unveiling by Hammond and Havid of a £5billion to fund tens of thousands of homes across the UK by 2020 (just ignore the previous promise of 1,000,000 new homes by 2020 – this is different!). This coupled with planning rule changes to encourage more brownfield sites being developed on, which I personally thought had already been promised. So will this initiative solve the housing crisis – erm, no!

Solving the housing crisis needs to come from all fronts – housebuilders, local authorities (440 homes in Q3 Fy17) and housing associations. It doesn’t bode well to attack housebuilders as Javid did – it is strong to suggest land banks are by default creating a “stranglehold” without seeing the colour in the detail. Some sites are held up in options, awaiting planning and simply companies need certainty of pipeline – I’d hate to see how long a housebuilder lasts that buys land and builds and repeats. Either way at least “housing” was centre stage at the conference.

You then look at the wider economy – figures indicated construction wasn’t stalling in the “new world” but recent Markit/CIPs data suggests growth in September – due to the housing sector – which is welcome after the seven-year low in July. So investment in housing is even more critical to support the significant large construction sector – no-one wants a repeat of 2008 – 2012 and that is where infrastructure investment is needed (but that’s for another day).

Despite these figures, house price growth has slowed in September (but is still growing, let’s not kid ourselves). The average house price now stands at £206,015 – being 0.3% rise in September and the annual growth now at 5.3% (Nationwide) or 5.8% (Halifax).  Recent data suggest house prices have reached 10 times earnings in over a third of England & Wales – which is a worry statistic for new house buyers and makes me think I should be moving to a larger house if this is the case.

As always there is a difference between differing statistics but the two key points to take away from this:

·        There is ongoing growth still across all regions; and
·        The South East, unsurprisingly, still leads the pack for growth (across both statistics).

Now as a Yorkshire man, and infact looking at the North as a whole, it is good to see the levels of growth but it comes back to the underlying issue – not enough affordable housing – these figures don’t help that!

The outlook for housing is mixed, there is certainly difficulty accessing the ladder still – eased slightly by a mortgage rate cut but not forgetting the shortage of supply which will continue to constrain activity.