2018 Construction Economics Roundup
Nov 05, 2018
In the construction industry, no two years are the same. Huge macro events like political upheaval, Brexit, GDP falling or rising, or changes to interest rates, can all have an interesting knock-on effect for tradesmen and businesses of all types within the construction sphere.
In this article, we will look at some of the recent news and updates that relate to growth, slowdowns, economics, and more.
Is Brexit dampening confidence? Not entirely
Brexit is something of a puzzle, and whilst we won’t speculate about whether it could be good or bad for the construction industry, recent reflections would suggest that it’s a mixed bag, for the moment at least. Back in September, the rate of growth of the construction industry hit its weakest point for six months, though only very marginally.
For house building and commercial construction, the news is good, as activity continued to increase, albeit at a slightly weaker pace than in August. Bad news for civil engineering, however, as it was marked as the worst performing subsector due to its activity decline. Invitations to tender for work have rebounded and the rate of new order growth stands at its highest point for almost 2 years.
Brexit seems to be providing caution, which is not always such a bad thing. We all know that risky behaviour is something to be minimised in times of uncertainty.
English construction firms growing faster than Scottish
It has been revealed by Scottish accountants Henderson Loggie that firms south of the border have grown faster than those north of it. In the report which analysed 1,708 construction companies in Britain, including 157 Scottish companies, it found that rising costs, difficulty in finding high-margin projects, and problems with lending had taken more of a toll in Scotland than England or Wales.
Turnover across Britain has impressively increased on average by 14.8% for construction firms, but when Scotland is viewed independently, their growth rate of 8.4% is notably less.
Faster English growth bodes well for all and that growth in a difficult marketplace is still growth. What is more important is that companies maintain a healthy cash flow alongside their revenues in order to avoid insolvency.
Could the construction industry be on the verge of a boom?
Some predictions suggest that the construction industry, if willing to embrace tech and off-site modular manufacturing, could be about to experience its biggest shift in decades, if not centuries. With construction output per hour worked staying relatively stable for more than 20 years, it may well be the prime time for a boost.
The reason for that stability in productivity is that most projects function in much the same way, a team start from scratch and they build until the project is done. Variances come down to the individuals, materials, equipment, and processes used. There’s nothing wrong with traditional construction, but some firms are now looking at modular construction, meaning floors, walls, electrical systems, insulation, cladding and more can all be put together before they arrive on site.
The Croydon Tower project could be a sign of things to come, with Tide Construction responsible for what will be the world’s tallest modular development, at 44 storeys. The tower will provide 550 homes from 1,500 modules, taking just 24 months to build. Apex Tower in Wembley popped up 29 modular storeys offering 580 student beds in less than 12 months, back in 2017.
We believe that traditional construction and modular construction will grow side by side over the coming years, introducing new opportunities to the workforce and industry.
Results from the third quarter – homebuilding
The latest quarterly trade survey from the Federation of Master Builders, looking specifically at the SME building sector, has raised some very interesting points. Whilst construction grew more slowly than in the quarter before, we have now seen 22 consecutive quarters of growth, going strong for five and a half years.
Positivity remains high for SME construction companies, with 32% of FMB members reporting rising workloads in the third quarter. However, despite the growth and positivity, there are some areas that will raise a few eyebrows and bring about a concern.
The survey found that 86% of builders believe material prices will rise over the next two quarters, 58% predict wage increases in that same time period, and 68% are struggling to hire bricklayers. A further 59% are having difficulty hiring carpenters and joiners for their projects. The skills shortage is having a knock-on effect for many companies, resulting in higher labour costs and project delays as they look to assemble the teams required for builds.
With Brexit looming, fears remain over the estimated 13% of overseas workers in the construction workforce, with their absence worsening the skills shortage. However, for many, this presents opportunities in the industry for a new generation of tradesmen to enter the field and provide some stability.
Stability in the South
We finish on some good news from the same report mentioned above from the FMB. According to the Federation of Master Builders South, the pace of growth among Southern England’s construction SMEs remained stable in the third quarter of 2018.
The Director of FMB South, Phil Hodge stated that “Construction in the south of England continues to demonstrate strong performance. Growth has remained in positive territory since the first quarter of 2017. The private residential repair, maintenance and improvement sector has proven to be particularly strong.”
Hodge continued, assessing that “There is a continued investment by homeowners in extending living spaces within existing footprints, rather than opting to move in these politically uncertain times. This has provided many southern builders with growing workloads. Indeed, this growth is particularly commendable given the considerable headwinds the sector is facing.”