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'Realising demand' in UK construction

Mineral Products Association

6 min read Partner content

Expert analysts at a Mineral Product Association event, debate the economic and political outlook for the construction sectors and ways to find ‘realisable demand.’ 


When the reality of the Great Recession first began to sink in, policy-makers had little appetite for making bold commitments on infrastructure and housing development.

Almost a decade later we live in a very different political and economic climate. Commercial demand is sound and steady, and the political will to boost development and tackle the housing crisis could hardly be stronger.

While optimism should not be discredited, the speakers at a Mineral Products Association event on Thursday cautioned there is still much work to be done before the industry fully realises this potential.

It was a decade ago when the Barker Review of Housing Supply stated that 250,000 homes need to be built each year to prevent house prices spiralling out of control, yet the output still falls someway behind.

“Most big issues build up over time; often they have to become big before they get the political attention that’s needed to make a meaningful attempt to solve them,” said John Slaughter, director of external affairs at the Home Builders Federation (HBF).

“The good news is we are now in that place.”

Slaughter explained that the HBF had been working with Government to ‘speed up and diversify’ output through a number of measures: helping SMEs get into the market and grow; improving business competition and the planning system; reducing regulation and developing ways to help buyers get onto the ladder such as Help to Buy and Lifetime ISA.

“We’ve made a lot of progress,” he added. “180,000 homes were built last year, much better than the recession. And 200,000 is a foreseeable and achievable target if the economy remains benign.

“But we need to go even further, clearly 200,000 isn’t enough for England every year.”

Homeownership has dwindled at a “staggering” rate, he said. In the last decade homeowners in the 25-25 age group fell from 59%-36%, and has even fallen amongst the over 65s.

Neal Hudson, housing market analyst at Savills, agreed that the conditions were improving, but while people continue to priced out of the market, developers will have less incentives to build.

“We’re in a unique position where it’s probably the cheapest it’s ever been to own a home, with record low mortgage rates,” said Hudson.

“The big challenge for first time buyers is not so much the cost of ownership, but that actually buying is expensive.”

In the early 90s the average person needed only 30% of their annual income for a deposit on the average home. This “rocketed” to 100% during the credit crunch.

“That’s now improved,” he said “We’re at 70%, but it’s still double what it was in a fully functioning market. And in London, where demand pressure is greatest, the average first time buyer needs a deposit of 130% their annual income.”

He stressed there were a host of contributing factors to the high loan to income ratio: low interest rates and the mortgage lending has driven up prices; and investment incentives in the current taxation and pension environment has meant “investing in property has become one of the most sensible things people could have done.”

A newly introduced 3% stamp duty may see many of these other groups pull out of the market, he said, “so ironically, we might see more first time buyers increase, and in the short time we could see some activity.”

“But while we are in this high house price to income market, there will unfortunately continue to be large numbers of people who are priced out and for whom home ownership will remain a distant dream.”

Both speakers agreed on the ‘conundrum of undersupply’ when relying on the private sector to deliver: house prices are high because there aren’t enough, but as long as houses remain unaffordable, the private sector won’t have buyers to build for.

“If Government policy focuses purely on homeownership and private sector building,” said Hudson, “you are always going to be limited by affordability.”

A member of the audience asked that if the Government really wanted to tackle the housing crisis, and given the constraints on the private sector, shouldn’t the public sector get involved?

“I generally agree with premise of your question,” answered Slaughter. “It would be helpful if there was more public sector investment, but it’s not politically where the Government wants to be.”

Professor Vernon Bognador of Kings College London felt that devolution would have a positive impact on housing and wider economic development.

It’s a remedy for the over-centralisation of Government, which has led to increased deprivation in some Northern cities,” he said, where the “economic attention is matched by political clout.”

“People in a devolved Greater Manchester say, ‘We’d like more powers from the Government, we don’t get enough money, but look at the marvelous things we’ve done with what we’ve got.”

“If you have a nationalised service like NHS, the incentive is always to grumble, because if you’re doing well the Government says, ‘Fine, we’ll shift money somewhere else.’

“There’s a different spirit in a locally organised devolved body.” Bognador added “Devolution incentivises development, I think it’s a fundamental and welcome change.”

Richard Threlfall, partner at KPMG gave his analysis of the infrastructure industry and the short term constraints that it is likely to face.

“On the demand side of the equation, this industry has never had it so good,” he opened. “To be really blunt, if you don’t think as an industry you can make decent money in the next five years, you should get out now.”

Five of six years ago, he explained, the Government only reluctantly invested in infrastructure when it had to.

“We’re in a totally different world today. Society has bought into the idea that infrastructure drives economic growth: it’s not just this Government; it’s shared across the world. I don’t think that’s going to change in the near future.”

“On the commercial side, the economy’s in good stape and demand will continue there.”

However, he raised three factors which will constrain the industry’s ability to fully take advantage of peaking demand.

Firstly: he was confident that Brexit would be very difficult for the industry.

Secondly, he felt that the construction industry’s collective record on investment and training was woeful, and limited its ability to meet high demand.

“Thirdly, and most importantly,” he said “ Technology opportunities are starting to permeate this industry, but the industry has not had enough margin to really take advantage of that, and invest in technology early on.”

“If we don’t invest in skills, and we don’t invest in technology, we won’t take advantage of that demand side opportunity.”

While he felt the skills shortage would correct itself eventually, as the increased demand draws more people into the sector, there is a responsibility on the client, the regulator and the industry itself to take action, or these constraints “will continue to hold us back from where we could have been.”

“Clients should realise that the future of this industry lies in investment, and investment commands a decent margin,” he concluded. “That means the client doesn’t just buy the cheapest, but they buy on a long-term partnership with the industry, and that’s the change I want to see.”

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