CONSTRUCTION JOURNAL

Is the UK construction industry equipped to cope with increased demand for its services?

Following the government's ambitious pledges to invest in infrastructure, housing supply, high streets and climate change, we ask whether our industry is equipped to cope with increased demand for its services

Author: Steven Thompson

20 April 2020

December 2019's UK general election was an important political occasion and was followed with avid interest across the country. My interest was two-fold: on the one hand I was interested in the causes close to my heart and the future of both myself and my family; on the other, it was the construction industry.

The Conservative Party's plans for infrastructure, housing supply, the high street and climate change in the UK are ambitious. Indeed, many of the figures cited by chancellor Rishi Sunak in his Budget speech, such as the promise of £600bn in infrastructure investment over the next five years, are positive.

We are all aware of the improvements that need to be made to the UK infrastructure network, such as roads and train lines – Sunak announced an investment of £27bn to improve Britain's road network – and the building of new assets, such as schools and hospitals, which are required to go alongside home building in order to ensure adequate placemaking.

In their manifesto prior to the election, the Conservatives pledged to continue progression towards 300,000 homes being built each year by the mid-2020s, and have promised £2.7bn towards building six new hospitals by 2025, plus funding of £100m to develop proposals for 34 more hospitals.

The RICS' response to the Conservative Party's victory praised the Party's plans but stated that 'the devil will be in the detail as to how promises will be achieved'.

Some of the financial detail was specified by the chancellor in his Budget speech, but the detail in this case is, for me, the resource of the construction industry.

Consider these pledges and investments alongside the work already going on in the UK construction industry: the public sector projects, including HS2 and housing stock, and then the many private sector activities.

The Q4 2019: RICS UK construction and infrastructure market survey  a quarterly sentiment survey of chartered surveyors who operate in the UK – reports that a net balance of 12 per cent of surveyors say their workload has risen. In addition, 16 per cent of respondents reported an increase in how business enquiries for new projects or contracts have fared in the last three months – up from four per cent in Q3.

  • Infrastructure sees the strongest momentum – 17 per cent more contributors reported an activity rise rather than fall during Q4.
  • Construction of private housing continues to rise – a net balance of 15 per cent reported an increase in workload, broadly unchanged from the previous quarter.
  • Private commercial activity increased with a net balance of 11 per cent reporting a rise – a two per cent increase from Q3.

Combine these findings with the other, non-building, projects being addressed by the industry, such as actioning points from the Hackitt report towards the production of safer outputs for all end-users and looking at ways to attract and recruit the necessary skills to the industry and it's clear that resources are already stretched.

In terms of safety measures, Sunak has announced funds towards the removal of dangerous materials from tower blocks and has created a new Building Safety Fund, but there are also the low margins across the industry that have resulted in late payments and even insolvencies to consider.

"Do we have the resources to absorb the money being injected into the construction industry and transform it into completed projects?"

In other words, do we have the resources to absorb the money being injected into the construction industry and transform it into completed projects?

Perhaps the most important resource is personnel. In October 2019, the UK government added quantity surveying to the Shortage Occupation List, alongside numerous engineering roles. This means that the rules for employers who want to sponsor skilled workers from outside the European Economic Area are relaxed, making it easier to hire the right skills. How this will evolve post-Brexit, and whether this rule will be extended into the European Economic Area remains to be seen.

The Office for National Statistics' August 2018 report on the migrant labour force in the UK's construction industry found that non-UK nationals accounted for eight per cent of all workers in the UK's specialised construction activities, or special trades, subsector, and 13 per cent of workers in the construction of buildings subsector. These numbers have undoubtedly risen since the report was published.

The Q4 2019: RICS UK construction and infrastructure market survey reports that 42 per cent of respondents see skills shortages as an obstacle to growth, while a net balance of 73 per cent anticipate an increase in unit labour costs over the following year. Although 39 per cent of respondents did report an increase in headcount to support new work, 33 per cent intend to curtail workforce development over the next year.

There are also the contractors and subcontractors coming to work on projects from outside the UK. VINCI Construction is an example of a French contractor that has been operating in the UK market for a number of years; it is currently working on HS2, among other projects. It will be interesting to see if Brexit will ultimately make the process of countries outside of the UK bidding for UK work – particularly on major projects – more difficult.

On the other hand, if UK firms can only bid for jobs in the UK market, will it limit the UK construction industry in terms of keeping up with trends and advances?

Physical resources, such as materials and machinery, are another consideration – free trade deals will take some time to be debated and agreed and companies will be gearing themselves up for associated price rises. The Q4 2019: RICS UK construction and infrastructure market survey found that 25 per cent of respondents intend to decrease investments on fixed assets, including equipment and software.

The government also pledges to invest in and help parts of the country that feel 'left behind'. Despite the chancellor allocating funding to specific regional areas, it remains to be seen how the government will balance the quick wins of local and regional spending against more long-term projects that contribute to sustainability goals and future quality of life. Indeed, with a 4.5 per cent growth in UK population forecast over the next ten years, it will be an important balance to strike.

"All we can know for certain is that the bumpy ride we've faced over the last few years looks set to continue"

I'm aware that my musings pose a lot more questions than they do answers. All we can know for certain is that the bumpy ride we've faced over the last few years looks set to continue.

But it's not necessarily all bad: as demand continues to grow – particularly in housing – supply will need to grow with it, and this will likely be good news for small- and medium-sized enterprises.

In terms of the job market, too, it's a great time to be in the construction industry as a qualified quantity surveyor or project manager – these skills are sought after and valued more than ever, and the fiscal reward should reflect this. I have already mentioned the potential restrictions on firms bidding for work in the UK market – these restrictions are unlikely to exist on an individual level. As skilled surveyors, no matter our country of origin, the opportunities for us to work across the globe are vast and the chance to gain experience on different projects in different cultures can only serve to help us grow, on both a professional and personal level.

We won't know the true impact of Brexit until we go through it, but RICS reaffirms its commitment to the construction industry and will make sure that whatever market ensues, our members are equipped and empowered to continue producing their best work.

Steven Thompson is associate director of the built environment at RICS  sthompson@rics.org

rics.org/consinfrasurvey

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