The Autumn Budget 2016 and the UK Housing crisis

Wednesday's budget has a number of implications for the construction industry in areas including much needed housing and improvements to the transport network throughout the UK. However, will these announcements have the positive impact on the UK housing crisis we have been hoping for?

The Government has announced it will build 40,000 new affordable homes. But what does this actually mean? Whilst 40,000 homes may seem like a lot it will actually be an overall reduction of approximately 13,000. According to the Office for Budget Responsibility (OBR) as a result of Wednesday's budget, house building is now likely to slow. There are a number of announcements that will result in house building increasing, but with others causing a slowdown, the overall result will be a fall of 0.2% in residential investment growth.

The OBR continued to say the announced £1.4bn increase in grant funding for affordable house building would partly offset the fall, in addition to the disposal of public land commencing sooner which in turn would bring the construction of 10,000 homes into the forecast period. However, this will not necessarily increasing funding overall. The real issue here is that the wording suggests a substantially large number of houses will be built but the reality is that the governments target of 1 million homes by 2020 is getting further and further away.

The first policy announcement relating to Housing was that Housing Associations will be able to spend grants on building homes for rent. The £1.4bn that is being made available for affordable housing will be given to Housing Associations, however, the plan is that Local Authorities bid for a proportion of this fund to put towards affordable rent, shared ownership schemes or rent to buy schemes

The second was that mandatory “Pay to Stay” measures will stop and therefore will no longer mean increased rents for higher income council tenants. This is an interesting one as previously those who earned £60,000 or more could be charged market rate rent if they lived in social housing, if the landlord decided to. It was then suggested that it would become mandatory for those who earned £30,000 (or £40k in London) to pay market rates for rent. It has now been confirmed that it will not be happening, and left to the discretion of the Local Authority. However the government is looking at ways to ensure that those on higher income contribute more to social housing. So what does the removal of the Pay to Stay policy mean for UK Housing stock? In reality, not a lot. It will simply mean a reduction in revenue to fund discounts for the right to buy scheme.

In addition to these policies, there will be a £3.15bn fund to build 90,000 new homes in London. Again, this sounds great, but these will be built over a long period of time, with no exact timeframe determined. The good news is that a priority for this money is to make housing available to low income families at a below market rent, as well as properties with rent restricted to one third of the average income of a typical middle income family.

Additional funding and house building policies aside, the government has not changed the tax rules around buy to let properties and mortgage relief, however it has decided to remove estate agent fees completely. This will mean two things. Firstly, with no change to the tax relief on second homes, less people are buying properties for the purpose of buy to let. The benefit of this is that there is a larger supply of property for those trying to get on the ladder, however this is obviously if a) they can afford the deposit and b) if they can get a mortgage - two key points that are often skimmed over by the Government. The drawback here is that for those that can not afford to buy, there will now be a smaller pool of rental properties on the market. Secondly, the scrapping of estate agent fees is likely to be a good thing for renters not having to pay for contracts to be printed however we should note that these costs are likely to be passed on to landlords and in turn, to renters in the form of increased rent.

All in all, it is good to see more funding to being allocated to housing but the reality is that there are less houses being built than previously forecast and if it continues in this way the government will not hit their target of 1 million homes by 2020.

The uncertainty of Brexit and the impact it is having on the Construction Industry

With the headlines full of the recent ruling against the government in the latest segment of the Brexit saga (pre results of the US Election), I wanted to think about what it will mean for the construction industry and what it already means.

In the wake of the Brexit result, I was at a networking event where the main speaker touched upon Brexit - a topic people were keen to avoid in order to minimise the risk of an argument or upset. The speaker had one clear message for the industry: "We must not talk ourselves into a recession". So far, so good. We seem to be doing ok. There are mixed reports regarding the housing market but projects are going ahead and redundancies aren't widespread in the industry. Which is obviously great news, but with projects such as Hinckley Point C going ahead, the decision on the Heathrow expansion one step further, it should make us question where we are going to get the labour from in a post Brexit Britain. 

Whilst there is no immediate effect in terms of law and visa retrictions, EU migrant workers have started to move back home unsure of how the next few years will pan out. The result of this may be that we see a drastic change in the make up of the construction industry. The main concern around Brexit is that the UK may lose access to the single market, a key provider of construction labour. It is estimated that 15% of the current construction workforce is European labour.

A further shortage of labour, in addition to the pre-brexit figure of 182,000 vacant construction jobs, would likely mean a rise in wages across the industry. As I mentioned in a previous post, the rail industry has already seen huge wage rises due to shortages of workers and engineers building new lines and tunnels resulting in a staggering increase of 74 per cent between 2012-2015.

And its not only a shortage of labour that is affecting the Construction Industry. We are already seeing an increase in costs of materials as a result of the weak pound. Steel prices are on the increase, as are costs of any materials imported from abroad and this means now that any variations on existing projects are likely to cost the contractor and the client more as costs are passed on. The result being that projects risk going over budget and an increased risk of projects being put on hold.

This kind of wage increase in conjunction with the rising cost of materials and the projected flat lining of growth within the sector for the fourth quarter signals an increased likelihood of problems for the weaker players in the industry. However it is by no means all bad news.

The uncertainty post Brexit was thought to signal doom for the industry. However there are several positives to come out of it. 

 

1. Housing: Inward investment due to the weak pound means that UK property is cheaper to overseas investors, meaning there is still the demand for UK property not only from domestic buyers but also foreign investors. The housing market saw an increase in growth in the third quarter of 2016 which has propped up the industry as a whole. With the government falling behind on their target of 1 million homes by 2020, the autumn statement should provide the sector with the boost it needs to stimulate growth with announcements likely to include plans for more local authority house building as well as build to rent homes. 

 

2. Infrastructure Projects: With the confirmation of infrastructure projects such as Hinckley Point C and the Heathrow expansion as well as HS2 and Crossrail 2 in the pipeline, even more jobs are being created. Whilst there are issues around this because of a shortage of labour, this is still a significant boost to the construction industry with these projects said to be worth around £400m. This will be especially beneficial in the areas where HS2 and Hinckley Point C are going ahead for job creation.

 

3. Is there scope for a deal with the US in this new Trump era? Only last month, Trump representatives claimed Britain will be offered a free trade deal before the rest of the European Union if the Republicans win the US presidential election, which they have. As with Brexit, only time will tell what the outcome of trade deals between the UK and the US will be but depending where you sit, this could be good news.

 

There is no definitive answer as yet and it is unlikely that there will be for some time until Article 50 s triggered, negotiations get under way and eventually conclude. Until then, it is important to keep the words of the speaker in mind... "We must not talk ourselves into a recession".

 

To the women in Construction: Do you need to behave like a man to succeed?

I had an interesting conversation with an architect recently who I reached out to, to get a different perspective of what a career in the construction industry was like for a woman. When I asked her if she felt like there was a glass ceiling, she thoughtfully remarked "yes, but not in the way you would think". The woman in question explained to me how it worked at her firm, "it's a case of he who shouts loudest". The glass ceiling was not gender based as such but those who pushed hardest, noisily proclaiming how great they were and how much they wanted the job were the ones who got it. Although it was generally men, there were women who got ahead in this way and it was down to them adopting the behaviour that is typically associated with how men operate in the work place. If you don't play the game, you don't get the job.

The crux of the conversation was that she didn't believe the best talent was being nurtured and promoted by using this strategy. How can you capture those who were quietly brilliant at their job but either do not have the confidence to put themselves forward or it is not their style? By overlooking them and failing push them forward in favour of those people who are loud (and competent) and have an unfailing confidence to put themselves forward for jobs, firms run the risk of missing out on the best talent.

So is there anything wrong with this? You could say that if you want a job, you should go for it and if you aren't willing to sell yourself to an employer who will?

The reality is that men are a lot more likely to go for the job they want, regardless of whether they are qualified, than women. A study by LeanIn.org and Mckinsey & co. found that fewer women than men are aiming for the very top. Among senior managers, 60% of women said they want to be a top executive, compared to 72% of men. Women were also more likely to cite stress and pressure as one of the biggest reasons for not wanting to hold top positions.

Construction is one of those tricky industries where it still hasn't caught up and has a poor record of recruiting and retaining women, let alone promoting them to senior positions. However, as I have spoken about in previous posts, this is becoming more of a focus for firms as they realise they need to fill roles and women are the obvious source as they currently only represent 11% of the industry. The issue is there is still a perception that women aren't somehow suited to senior roles and as a result fewer women put themselves forward, or worse they are still overlooked.

So what is the solution? Do we as women need to change the way we behave in a male dominated work environment? The architect I mentioned earlier made me consider my opinion on this when she said, "behaving like a man doesn't mean we are equal to him, the reality is we're having to adapt ourselves to fit within a male industry and so we are not really any better off, we've just learned to play the game." And this I think is true. What we need is for the companies within the Built Environment to adapt and recognise that whilst the industry has been predominantly male, if this is to change the culture must also change to be more gender neutral. We need gender neutral competencies and behaviours, in order to attract the best talent to companies and into more senior roles.

In order to ensure we promote, develop and nurture the best talent within the construction industry it is important to recognise that different people need different things. Not everyone will shout about how great they are - you know it's just not very British!