Last edited 28 Aug 2012

Construction slump - perfect storm

Statistics come out about the construction industry every week. And they always seem to be bad. But what do they really mean?

To try and answer this, and to get a bit of perspective, we've written a report that takes the long view.

How does the economic outlook today compare with the last ten years?

Here are a few of the headlines:

Private sector construction collapsed after the credit crunch.
But the public sector stepped in with a massive increase in spending, so overall the industry didn't fair too badly until the beginning of this year.
Over the last 6-9 months however public sector funding has started to dry up.
As a result, right now, total output is 9% lower than it was in 2002.
If public sector cuts continue, the private sector will need to grow by more than a third of a billion pounds a quarter just to maintain current output.
At the moment there are no signs that the private sector is growing.

Click on the link below to read the report:

The State of UK Construction: A Ten Year View.

Or download it as a PDF with bonus comments and possible solutions from David Trench:

File:The state of UK construction - Designing Buildings Wiki.pdf

See our suggestions for how to get construction back on track. Just click on the Discussion link at the top of this page.

Read an article in The Express about our report.

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Comments

To start a discussion about this article, click 'Add a comment' above and add your thoughts to this discussion page.

Too many people believe the tap can be turned on and off easily and the full flow of employment and economic benefit will be quickly reached. This is not the case. Construction projects have a lead time that generally takes longer than the build period - new airport facilities (such as Terminal 5) take over a decade in planning and design.

So how should the government address these issues in order to galvanise the construction industry and stimulate the economy, beyond possible plans to ease planning laws and reduce enforced quotas for social housing?

Here are Designing Buildings Wiki’s top five solutions:

Re-introduce tax relief on mortgages. This would instantly encourage house builders to dust off their mothballed schemes to meet the surge in demand and affordability.
Re-introduce a selective employment tax giving tax breaks for employees engaged in manufacturing. This would help redress the balance between manufacturing and service industries and act as a catalyst for construction companies to seek out ways of prefabricating assemblies off site in factories. Inevitably this will lead to regions hard hit by the downturn capturing contracts for sites that might be hundreds of miles away.
Re-introduce stock relief allowances. This would encourage continuity of supplies instead of the current stop/go “just in time” policies that hamper efficient production right up the supply chain.
Avoid focusing on new grand projects. Instead kick start those projects that have been placed on hold, that have planning consent and that have a completed design. These are the projects where funding dried up following the banking crisis. A National Development Agency staffed by highly qualified individuals should examine such schemes and assess economic viability prior to the government standing as guarantor to a reputable funding institution.
Re-introduce capital allowances. Ernst & Young calculate that UK corporations are sitting on a staggering £750 billion, around half the UK’s GDP. These companies prefer to use the cash to reduce debt, rather than take it on. To get things moving and release this cash the government should re-introduce generous capital allowances not only for plant, machinery and stock but for refurbishment of premises. Refurbishment requires short lead in times and seldom involves planning consent. It is fast turnover with labour peeking much more quickly than for new developments.