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Construction Industry Research Roundup

As we edge closer to the Brexit negotiation deadline of 29th March, it seems like tension is building a little in the construction industry. For example, during February, the continued uncertain situation regarding Brexit led to a number of industry leading bodies calling on the government to do everything it can to avoid a ‘no-deal’ scenario.

We’ve taken a look at the latest construction market figures and related news from the last few weeks.

Builders’ merchant sales still growing – but losing momentum

In the latest Builders Merchants Building Index (BMBI) quarterly report, merchant sales in Q4 2018 were revealed to have been 3.1% higher than in Q4 2017. The fourth quarter started well, with October sales values up 6.8% year-on-year, but this was partly due to price increases, and a clear slowdown in sales by value became apparent towards the end of the year.

The strongest sectors in Q4 in terms of growth were timber & joinery products, with over 6% year-on-year growth, while the landscaping, plumbing, heating & electrical and decorating sectors also outperformed overall merchant sales growth. Weaker categories included heavy building materials and kitchens & bathrooms.

Construction activity appears to be falling…

In early March, the Markit/CIPS PMI index for construction was published, covering the month of February 2019. Following a slowdown in January, it showed the Total Activity in the UK Construction Market Index had fallen further to 49.5 in February, marking the first time for 11 months that the index has been below the 50-mark that separates growth from contraction.

The fall was attributed to a drop in commercial building and civil engineering activity as a result of Brexit related uncertainty and caution among investors in the commercial sector, which had slowed down decision making on larger projects. Housing was reported as the best performing area of construction activity in February, and the only sector to register growth, though it was modest. The survey also revealed that supplier performance had deteriorated.

….but forecasts are positive

The Construction Industry Training Body (CITB) bucked the negative trend when it released its latest forecast for the construction industry the other week. Its forecast anticipates growth of 2% in 2019 and 3% in 2020 – despite the recent ONS figures on construction output growth and new orders, which were less than encouraging – but only if the UK and EU can reach a Brexit deal.

It is expecting the largest increase to be in public housing, with infrastructure set to rise by 1.9%, down from 3.1% predicted in last year’s forecast. In commercial construction, activity is forecast to drop sharply this year due to investors taking a cautious stance ahead of Brexit.

Interestingly, it is also expecting the housing repair, maintenance & improvement (RMI) sector to benefit from a quieter property market as homeowners halt plans to sell up and instead focus on improving their current properties. As a result, it said construction employment should reach 2.79 million in 2023 – just 2% lower than its peak in 2008.

Housebuilding remains profitable

One sector that doesn’t appear to have suffered too badly has been housebuilding. Persimmon, for example announced profits of £1.1bn, while profits at Bovis soared by almost a half to their highest level on record and Taylor Wimpey saw profits increase by 19% to reach more than £800m for 2018. As a result, housebuilders are now facing scrutiny over whether Help to Buy is boosting their bottom line at the expense of customers. In the case of Persimmon, its profit per house has gone from £22k in 2012 to over £60k in 2018, and half of the homes it built last year were sold under Help to Buy. Could it be time for the government to intervene instead of continuing to incentivise the housebuilders?

The National Housebuilding Council (NHBC)  released a few different sets of figures during February. The report that covered the full year 2018 showed that both housebuilding registrations and housing completions were relatively flat compared to 2017 (registrations were down 0.5%), though a slowdown was recorded in the last four months of the year. The report also pointed out that over the year, registrations in London actually fell by 10%, with a similar picture in the Midlands, following two strong years. But its subsequent report on January 2019 revealed that UK housebuilders and developers registered 12,677 new homes – an increase of 9% compared to January 2018.

The NHBC’s chief executive, Steve Wood, urged developers to adopt modern methods of construction, such as offsite building of housing units in factories, in order to reach targets.  The announcement regarding plans for the UK’s largest modular council housing scheme to date that were submitted by Leeds City Council and United Living seemed like good news, but given that the planned development will comprise just 28 homes, it could take a while to reach housebuilding targets this way – at least in the social housing sector.

More government ‘funding boosts’

Other good news for housebuilding includes the announcement that the government is giving a £6m funding boost to the community-led sector across England to stimulate affordable housebuilding. The money, once allocated, will cover government-funded training and advice to help communities kick start local housing developments and help them build more of the homes that their area needs. The community-led sector, headed up by four large housing charities, is expected to supply around 5,000 homes over the next five years, if the initiative works out as planned.

A somewhat larger announcement was the £250m worth of housing deals to deliver almost 25,000 more homes, which was announced on the 14th February. As part of this, the government said it will also invest £157m in infrastructure such as building roads and putting natural green space around developments. A new partnership has also been struck by the government’s housing accelerator Homes England to build over 10,000 properties on Ministry of Defence land on 7 military bases across the country. This is the first deal to deliver homes at speed under the accelerated construction programme, and could actually make a real difference.

Fears over a ‘no-deal’ Brexit

During February, the continued uncertain situation regarding Brexit has led to a number of industry leading bodies calling on the government to do everything it can to avoid a ‘no-deal’ scenario. First out were the Federation of Master Builders (FMB) and the Construction Leadership Council (CLC), which both want the government to review its proposed migration system in the event of a ‘no-deal’ scenario as it would cause a huge amount of uncertainty for the EU workforce currently employed in construction and a potential skills crisis.

Following last months’ Brexit summit, a number of leading trade bodies, including the Civil Engineering Contractors Association (CECA), Construction Products Association (CPA) and Build UK, also wrote a joint open letter to Theresa May from the construction industry. It said that a no-deal Brexit could lead to a fall of at least 4% this year in construction output, with the greatest impacts on the housebuilding and commercial sectors, which could fall by 10% or more during 2019.

The Mineral Products Association (MPA) also issued a strong statement urging the government – and individual MPs – to put growth before politics, saying its “worst fears have been realised with unnecessary uncertainty fuelling unnecessary decline in growth and investment at a time there is a burning need for more housing and infrastructure”.

And yesterday, even the OECD announced it has slashed its growth forecasts for the UK and warned that a no-deal Brexit could plunge the economy into recession.

Concrete – good or bad?

Finally, concrete has been getting some bad press recently, most notably during the Guardian’s ‘concrete week’ where they highlighted that, taking in all stages of production, concrete is estimated to be responsible for 4-8% of the world’s CO2.

The question is though, what are the viable alternatives? Steel, asphalt and plasterboard tend to be more energy intensive than concrete, and using timber is probably not a real alternative either, for a number of reasons. The raw materials for concrete are almost limitless, and it can be recycled – a lot of discarded concrete is crushed and reused as aggregate. Product development is also underway to find alternatives to Portland cement, as different mixes can reduce the carbon footprint by up to two-thirds.

Has the UK stopped building?

In summary, market figures issued in the last fortnight have painted a more negative picture than previously, while a number of construction sector firms, including Kingspan and SIG, have released disappointing results, which have been largely blamed on Brexit uncertainty.

So has building stopped? There is nothing in recently released figures to directly indicate that it has, but there are clear signs of caution and irritability with the current situation, with the details of any deal no clearer and a sense that we just need to get on with Brexit.

Written by Anna Eriksson, MRA Research

 

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