Construction has always been an important industry in the UK. Where on average 13% of people in the UK are self-employed, in the construction sector that number skyrockets up to roughly 37% depending on how you calculate the figure. Partly because of the high number of self-employed people in the economy, this means that the construction industry is home to over a million businesses – put differently, 17% of all companies in the UK are in the construction sector.
Since 2013, the construction industry has been growing rapidly, outstripping the growth rate of the UK economy as a whole after a post-recession slump. More people than ever now work in construction since records began in 1981. This is also in the context of rising productivity and output in construction, and gradual deregulation of the industry to encourage more building to take place.
Source: Office of National Statistics
So why is it that RICS, the Royal Institution of Chartered Surveyors, have reported the first slowdown in the construction market for more than six years? In this, our most recent blog post, we discuss why the market has decelerated its growth.
What Has Happened to Construction?
In the last five years, the construction industry has averaged a 5.2% growth, well above average for most UK market sectors. The South West is also well above average for the number of construction jobs in the area, and more than 8% of all jobs in the West Country are in the construction industry, according to the Office of National Statistics (ONS).
However, RICS has reported that commercial and industrial construction growth has stopped in commercial and industrial builds. Additionally, when businesses were asked how enquiries for new projects or contracts have fared in the last three months, 10% more respondents reported an increase rather than a decrease in enquiries – compared to 24% in Q3. Structural engineering, building repair and maintenance work markets has consistently high growth and there will continue to be high demand in 2019. For other kinds of jobs, the industry had slumped.
Shortage of Skilled Labour
One of the leading causes constraining additional growth is a shortage of skilled labour. A lot of work involved in construction requires well-trained members of staff, but in recent years the number of people entering the industry has declined. This has led to a decline in productivity, part of a larger national trend where productivity of workers has fallen. While more people are being encouraged to take up vocational work and gain the necessary skills, this is a long term solution that does not address the labour pinch point that limits the market.
We expect structural engineering and construction activity to rise rather than fall in the coming years, so we expect the shortfall of good quality staff in the construction industry to continue to grow. This will continue to be a significant challenge for the industry unless more people can be convinced to work in the growing sector.
Related to the labour shortage is uncertainty around Brexit. EU nationals are an essential part of the labour mix and have many of the skills that are needed on construction sites to complete both large and small scale projects. With EU nationals accounting for 8% of the UK’s construction workforce (above the 6% average for all industries), this means that up to 175,000 jobs are insecure. It also strongly discourages immigration of skilled construction workers to the UK, in case they are not allowed to reside after moving.
Uncertainty is especially discouraging for commercial and industrial construction work. For residential work, the lifting of the Housing Association borrowing cap and additional funding for affordable homes in October is likely to keep the market active, but until it is clear what the outcome of the Brexit deal will be, business will be cautious and defer large construction projects. That said, it is likely when (and if) a deal is finally made, there may be a sudden spike in industrial and commercial work on the market.
Finally, there is fear that for chartered surveyors, building conservation experts, and structural engineers in Devon, that funding for historic building protection and repair will diminish. Particularly when there is a skills shortage, some important historical sites might go unprotected.
Struggles in the South
Despite the South West employing more than 200,000 people in construction and being a significant contributor to the local economy, workload in the South is below average for the country as a whole. RICS reports a 24% growth in new business enquiries in the North, compared to just over 10% in the South West.
London and the South East have been shielded in part from the lack of growth in the industrial and commercial construction sub-sectors thanks to more public spending and infrastructure in the areas, but the South West had no such protection. A wide array of construction issues have compounded in the South West, which has ultimately led to growth deceleration in the market.
As surveyors and structural engineers in Devon, we have a wide range of experience dealing with different construction projects. With many years of experience in all aspects of construction, we can offer a multitude of services to you. For a detailed overview of what we have to offer, please take a look at our services page, or get in touch and we will be happy to be of assistance.