According to the latest Government statistics, housebuilders continue to be squeezed by a combination of rising material and wage levels, as well as an ongoing skills and raw material shortage. The government figures, show that over the past two years, the cost of building materials such as timber, bricks, cement, concrete, and steel have all increased dramatically in price.
The main reasons for these rapid price increases include the war in Ukraine which has limited the supply of raw materials such as timber, as well as the huge increase in the cost of the energy needed to produce materials such as bricks and plasterboard. And with Andrew Bailey, the governor of the Bank of England last month asking companies to show restraint in passing rising costs on to customers, the UK construction industry is facing real pressures.
The Government’s Construction Material Price Index which shows the cost of raw materials, has increased by almost a fifth over the past year – the largest annual increase since the index was created in 2015. As an example of the supply pressures the industry is facing, at the end of 2022, the stock level of the typical ‘common’ brick used in the UK construction industry stood at 19 million – over 50% lower than the 39 million bricks which were available pre-pandemic.
Impact on house building levels:
Although construction output in the UK jumped by 2.4% in February giving the sector a welcome £15bn boost – the highest monthly cash boost since records began – the increase was due to an increase in private housing repair and maintenance rather than an increase in the level of new homes being built.
The ONS figures report a mixed picture across work sectors — for example, new commercial housing projects saw a 4.4% fall, continuing the trend of not enough housing being built. And looking further ahead, the outlook for housebuilding is less optimistic, given that March was the wettest for 40 years which will mean that site work will have been impacted. According to industry figures, housebuilding starts fell by 39% in the first three months of this year compared to the final quarter of 2022.
The continued rise in the cost of building materials has also impacted house building levels in the UK. The Royal Institution of Chartered Surveyors (RICS) conducted a survey just before the pandemic which revealed that the cost of building materials was, even then, a significant concern for housebuilders, with 80% of respondents stating that it was a significant obstacle to new housebuilding. The high cost of building materials has led to an increase in the cost of construction, making it more difficult for some developers to build affordable homes – which for many aspiring homeowners is the only real current route into home ownership.
Skills and Labour Shortage:
There has also been an impact on the level of apprenticeships in the construction industry. According to the Construction Industry Training Board (CITB), the number of new apprenticeship starts in the construction industry, has declined dramatically over the past decade.
In 2011/12, there were 28,850 apprenticeship starts in the construction industry, compared to 18,830 in 2018/19, a decline of 35%. The high costs builders have faced has also made it difficult for companies to invest in training and development, further impacting the shortage of skilled labour in the industry.
According to the Federation of Master Builders (FMB) many small and medium-sized construction firms are still struggling to hire skilled bricklayers and carpenters. This shortage of skilled labour is a significant factor in the rising cost of construction and is leading to an increase in wages, making it difficult for companies to remain competitive.
Despite the recent announcement by the government that bricklayers, roofers, carpenters, and plasterers will be added to the Shortage Occupation List from this summer meaning the skills gap will be partially plugged, industry commentators say that the list doesn’t go far enough and should include, for example, additional professions such as electricians.
It’s estimated that building over 300,000 homes a year would generate £14.2 billion in economic output. The benefit to the country is clear and yet a shortage of skills at technical, supervisory, and managerial levels is holding construction back.
In its excellent recent report entitled ‘The skills construction needs – a 5 year outlook’ produced by the CITB it showed that the construction industry will need 266,000 new workers over the next 5 years simply to meet current housing demand. In the report, Tim Balcon, CEO of the CITB, said:
“The greatest challenge UK construction faces over the next five years is recruiting the number of people required to fill the growing number of vacancies. It will be a major task because construction vacancies recently hit a 20-year high and competition for talent, from other industries, is tough. Employers will need to refresh the way they recruit staff. Employing fully skilled workers is unlikely to meet the expected shortfall because, to put it bluntly, the workers aren’t available; they have left the industry through retirement, emigration, or choice.”
New and growing skills needs such as energy efficient construction and digital ways of working are key challenges for the sector. But the shortage of skilled labour is also impacting the quality of construction work in the UK. According to a survey conducted by the Chartered Institute of Building (CIOB), 91% of construction professionals believe that the skills shortage is having a negative impact on the quality of construction work in the UK.
But the industry is not standing still and has been very active in trying to address these issues. Trade bodies such as the FMB and CITB are calling on the government to provide support for the industry. The FMB has called for the government to provide incentives for small and medium-sized construction firms to invest in training and development, while the CITB is calling for increased funding for apprenticeships and training programmes.
There is little doubt that the sudden increase in the cost of building materials over the past few years coupled with the acute skills shortage, has been a contributory factor on the number of new homes currently being built in the UK. However, as Leeds Building Society pointed out last November in its public policy document which looked at how the government could tackle the UK housing crisis, the government needs to work more closely with the construction industry to invest for the long-term in education and skills training. It is also imperative that it supports small and medium sized housebuilders who already provide over 70% of apprenticeships.
It is only by working together that the issues the housing market currently faces can be addressed so that the hopes and aspirations of millions of prospective young homeowners to get a foothold onto the housing ladder can be fulfilled.
Martese Carton is director of mortgage distribution at Leeds Building Society.
