We don’t have to pretend that things are better than they are, but if we want to boost people’s confidence in our industry, we should go easy on the handwringing
Someone once described Bill Clinton as the luckiest man in the world. It was said that if he had been a passenger aboard the Titanic when it hit an iceberg, the iceberg would have sunk.
Clinton knew that survival in both political and economic terms is all about presentation and it is this that shapes our perception. Our industry is a core barometer of the economy and the current perception is that things are not going well.
The recent headlines covering our sector have ranged from an OFT inquiry into construction corruption to major residential developers halting housebuilding. Someone remarked that things are so bad that much of the UK construction workforce is actually migrating back to Poland. But does the perception reflect the reality?
Having worked through the previous recession, I see a different situation today. I recall a bronzed Labour prime minister, Jim Callaghan, coming back from his holidays in the 1970s. A wave of strikes had crippled the economy, inflation was about to reach double digits and interest rates were to reach the 15% level. Callaghan’s famous response was, “Crisis? What crisis?” Mr Callaghan lost all credibility from that moment on.
Today things are very different. We have interest rates at manageable levels, we have inflation within Bank of England limits and we have a workload buoyed up by public sector spending. The Olympics are around the corner and a few short months ago we were all moaning about the salary inflation caused by to a lack of resources. How quickly things change.
News of the US credit crunch has drenched all in a great wave of misery. The retail sector, which was merrily driving the economy forward, has halted the building of some shopping centres. Developers have “parked” prestigious schemes and the banks are downsizing. Housing only represents a fraction of the £110bn that our industry is worth, yet most commentators see it as its sole barometer. It grabs headlines when the chief executive of Persimmon Homes says that sales have dropped off by a quarter since January and that they are downing tools.
News of the US credit crunch has drenched us in a great wave of misery
As someone at the sharp end looking at cost and project management for clients, I can confirm there is a sense of procrastination as far as commissioning projects is concerned. Developers and funders can still get hold of money, but why buy now when the market may not yet be at the bottom of the cycle?
We have also seen material costs increasing over the past six months, in some cases by 20%. The euro is pummelling the pound and this means some essential items sourced from Europe have jumped in price. The cost of cladding, for instance, was about £850 per m2 at the start of the year; it is now more than £1,000. None of this is making people feel optimistic.
It is interesting to note that some parts of the Indian subcontinent are also going through a residential property slump. House prices have dropped by as much as 20% this year in Bangalore, India’s answer to Silicon Valley. Here, the subprime fiasco has affected the IT sector, which supplied technology to the US, and there are fears that the Bank of India’s plans to outsource using the city’s outsourcing companies have been put on hold. I guess you don’t need call centres if you don’t have any customers calling.
But Indian housing companies have taken a different approach to their handwringing UK counterparts. They are adopting remarkable marketing techniques to promote sales. Orange Properties, based in Bangalore, has promised a free 4 x 4 car worth more than £10k for every 1,500ft2 flat sold – a discount of just over 20% on a 4 million rupee apartment (about £50k). Another developer has offered to shelve monthly payments for three years on some properties near Delhi, and relief from stamp duty is becoming the norm in some areas. This malaise follows a property boom in which average house prices rose by as much as 50% last year and the sector attracted £2.5bn in foreign investment.
Returning to Mr Clinton, when asked what was of most importance to voters, he remarked, “the economy, stupid”. Sadly, my crystal ball is on loan, but I can say that confidence is built upon perception. It is unproductive to pontificate on what is going wrong when there parts of the market that are still buoyant. Areas of the Middle East, Eastern Europe and China being some important parts of the world where work is still driving our industry forward.
With a stagnating US economy likely until a new president is sworn in, and a beleaguered UK government fighting to be heard, this is the year when we all tread water. However, to maintain confidence our exertions need to be giving the impression that we are waving not drowning – at least not yet.
Richard Steer is senior partner at Gleeds