Supporting the UK’s construction industry in 2020

Jerald Solis, Director, Experience Invest

In the aftermath of the EU referendum in June 2016, there was a visible amount of consternation in the construction industry. For a sector that had developed close professional ties to the continent, both in terms of workers and building materials, many feared that Brexit could spell a major threat to normal business operations.

Up until the 2019 General Election, the lack of political leadership from Westminster placed the construction industry in precarious position. Brexit overshadowed most other political issues, making it extremely challenging for property developers to commission and commence much needed new-build projects. Furthermore, the construction industry also suffered due to its own set of problems; monthly output remained at a deficit, creating additional pressure on developers.

Boris Johnson’s victory at the 2019 General Election and subsequence passing of his EU Withdrawal Bill has seemed to finally bring some relief to the construction industry. A No Deal outcome is now less of a possibility and there is at least some plan in place to ensure that progress is made on Brexit. Importantly, a renewed sense of optimism has returned to the economy with international and domestic investors rallying to UK property in 2020. Of course, it is too early to determine how long this will last for.

With the UK now in the midst of tense negotiations with the EU, the Government will need to prioritise the needs of the construction industry. It can do so by ensuring any final agreement struck with the EU protects the interests of development firms and ensures they are positioned to increase their overall output. At the moment, many firms are worried about the impact of future tariffs and long-term access to materials. That’s why if the sector is to press on and make a success of the 2020s, the Prime Minister must understand and prioritise issues like these.

The systematic challenges holding the construction industry back

Immediately after the 2019 General Election, investment flooded UK assets, with the value of the stock market surging by £33 billion. This optimism has continued well into 2020 and has been having a positive impact on construction firms more generally. However, it does not fully address some of the systematic challenges currently facing the sector.

As mentioned, the construction sector has faced a long-term productivity challenge. June 2019 was construction’s worst performing month since 2009 — a time when the global financial crash was still having an effect. This downturn happened despite encouragement from big ticket, centrally funded projects like HS2. Thankfully, it might not last forever, as figures from the CIPS UK Construction Index showed that output decline has slowed since the election.

Another prominent issue is having access to a skilled workforce. Workers are the lifeblood of all construction firms, so it’s understandable that many are worried about a worsening of the skills shortage due to the UK leaving the EU. The future state of British immigration policy is still unclear, and the government has not made clear what systems will be in place to accommodate EU nationals currently in the UK. With 7% of British construction workers from the EU, and as many as 28% in London, many firms are calling out for greater clarity.

Finally, construction companies struggle when acquiring the capital needed to fund new-build projects. This is a long-term problem that has become more serious in the last five years. According to a survey of construction firms by the NHBC Foundation, 20% of companies are worried when it comes to accessing finance. This is a worryingly high figure given funding will often determine whether a project can be successfully commissioned.

There is no overnight solution to this problem. A long-term strategy is required to address each of these issues. Above all, construction companies would benefit from simply understanding what the future relationship between the UK and EU will look like. Doing so will mean they can effectively plan for future projects.

Using the construction industry to solve the housing crisis

There are a number of obstacles that the Government and construction industry must tackle head on this year. A top priority is the imbalance between housing supply and demand, also known as the housing crisis.

For the past decade, the housing crisis has been a top priority for successive governments. Most have pledged to address this imbalance by increasing the number of new-builds being constructed. Whilst integral to any solution, the targets that have been set have been criticised for being unrealistic. Boris Johnson has now set his own aim of adding a million new homes to the market by the end of this parliament – an ambitious target.

The Conservative party has proposed launching £100 billion worth of new funding for infrastructure projects, and the Spring Budget is an ideal platform to explain just how this capital will be deployed. Whatever the details, the construction industry will have an important to role to play.

I now eagerly look forward to the Spring Budget on the 11th of March. It is an opportunity for the Government to implement genuine reform and creative policy to address the challenges facing property development firms. Doing so, alongside keeping firms abreast of the likely final Brexit arrangement, will ensure the sector is best positioned to tackle the housing crisis and complete much needed infrastructure projects.

Jerald Solis is the Business Development and Acquisitions Director at Experience Invest