Can we build our way out of the economic hole caused by Covid?
- Credit: ARCHANT
Could we just build our way out of recession? It is not nearly as simple as that, reports Angus Williams.
In most economic depressions the first industry to stop work is construction.
Banks stop loaning cash. Developers stop snapping up new plots. And contractors down tools.
But despite the economic uncertainty caused by coronavirus, building sites have never really stopped work.
Whether that was an extension rather than the usual family holiday, a developer hoping to take advantage of a booming property market or a new warehouse opening to keep pace with the rush of online orders — construction in East Anglia has not always been plain sailing.
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Craig Western, director at Hadleigh-based architects firm Wincer Kievenaar, said since the onset of the first lockdown the firm had seen its workload steadily increase.
“For our practice, in particular, it’s predominantly been residential work,” he said. “Private clients who perhaps want to extend or alter their own home, and some who want to build their own dream home.
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“But there has also been a gradual increase in commercial inquiries.
“The commercial inquiries have all been warehousing. As you might anticipate there’s been less focus on office accommodation while people are still a bit unclear about its future.”
Mr Western said that resources all across the construction industry were stretched.
The most direct impact on his firm was the problem was the lack of planning officers to oversee applications, he said.
“I certainly don’t want to criticise any of our local authorities — they are working hard,” he said. “It’s just challenging for everyone dealing with these work levels.”
But others are feeling the pinch elsewhere.
Adam Overton, director of Heydon-based construction firm Overton, said: “I think the biggest impact is the price increases that we’re facing.
“Typically we would have been paying £5-6 per bag of plaster. Now we’re up to £9 a bag.
“We used to have our material prices held for 30 days, if not more. They’re now only holding them for 24 hours.
“That is a massive, massive impact.”
Saul Humphrey, chairman of New Anglia LEP’s Building Growth division and a Norwich-based property consultant, says these price increases were down to worldwide a shortage of supply.
He said: “These are global shortages in many cases and certainly national.
“For steel it’s gone from £600-700 per tonne to over £1,000. It’s a 30-40% or even 50% increase depending on the actual product type.
“These increases make it very difficult to offer a fixed price to a client and hold it. The fixed prices that have been given make it very hard to deliver upon that promise..
“Suppliers, subcontractors, contractors are all really fighting these increased costs and looking for alternative solutions, or some kind of relief from the pressures they’re under, because they are all very unusual.”
James Potter, managing director of Ipswich-based structural engineering firm Superstructures, said that from his perspective it was difficult to alter designs to get around material shortages and price increases.
“Redesigning around these material shortages is actually something that’s very difficult to do,” he said. “And it takes quite a long period of time. It’s a bit like turning an oil tanker around.”
Instead, he said, the solution lies in managing customers’ expectations to mitigate supply problems.
He explained: “It’s about planning ahead.
“I know some of the big contractors are talking to their clients are saying ‘we’re programmed in to start this big project in three months, you need to be aware that your material price could be 20% higher, and your lead time for all of these materials could be twice as long.’
“If as an industry we can be realistic about time scales and manage clients’ expectations we could push this spike of a boom out over a longer period of time.”
Bruce Lyons, professor of economics at UEA, said this building boom could actually cause problems for the economy as bottlenecks formed elsewhere.
He said: “The traditional Keynesian view would be that there is always some excess on the supply side. So if you increase demand, you increase jobs and you get to a virtuous circle.
“But Keynes was writing in the position of massive unemployment and inflation was not an issue.
“Now, our supply side conditions are different. If you reduce supply and increase demand, you don’t get so much more output as you get higher prices because of the bottlenecks in the economy.”
And, he said, any increased stimulus for the construction industry could create problems elsewhere.
“Under those conditions, you’re unlikely to cause problems elsewhere as people are fighting for lorry drivers and people for hospitality and things could get very tight,” he said.
Data from the Construction Instruction Training Body estimates that the East of England will need another 17,000 construction workers to keep up with the boom.
And that’s before taking into account possible major projects like Sizewell C.
Mr Humphrey said: “We’ve got an ageing workforce. In construction the average worker is older than they will be in many other sectors.
“There are serious systemic issues regarding the construction and labour force that may have been compounded by Brexit uncertainty, and the reliance on European labour.
“But it’s certainly a perception that we’ve no longer got quite the capacity that we had before. “We’ve got to think about building differently.
“We’ve got to think about modern methods of construction.
“I think with the shifts in labour availability and material availability, that’s drives the catalyst for change.
“To ‘build back better’ is being driven not just by the quest to be more efficient and to reduce carbon, but also the fact that there is this difficult availability of materials and labour.
“We’re at a point of a real paradigm shift.”