I read your piece “Construction firms will take credit crunch hit in 2008” (11 January, page 20) with interest. It claimed insolvencies across all industries are set to rise 8.3% to 13,492 next year, with construction singled out as one of the biggest casualties.
The main reason cited for this was the credit crunch. However, the growing number of insolvencies is not a recent trend. Indeed, figures showed that in 2007 there were 1,732 business failures in construction – up 2.5% on 2006. In the fourth quarter of 2007, the increase had jumped 9.6% compared with the same period in 2006, from 416 to 456.
There can be no disputing that the private housebuilding sector is likely to suffer a hit from the credit crunch. The Daily Telegraph revealed recently that Persimmon, Barratt Developments, Redrow and Miller Group have all reported that forward reservations are significantly below 2007 levels. As a result, they are expected to buy less land and build at reduced rates. New starts are therefore likely to fall, foreshadowing a decline in completions in 2009. Two successive years of shrinking completion rates will make it difficult for the government to hit its target of building 2 million homes by 2016.
For the remainder of the industry, research demonstrates a prevailing feeling of optimism regarding the impact of the credit crunch. The CBI reports that only 19% of firms believe it will affect their business decisions or plans, more than one-third of the UK’s SMEs feel positive about the year ahead and close to half perceive the outlook for business to be the same as in 2007. Indeed, results show SMEs are proving more resilient than big businesses, with fewer than one in six saying the outlook for 2008 is negative.
These attitudes are to be celebrated, especially since at present construction order books are full – testament to nine consecutive quarters of growth since 2005. Moreover, the chancellor’s 2007 increase in public spending, and high office and housing activity are delivering a £3bn increase in the value of new work. This creates a rather more positive outlook for the industry than commentators would lead you to believe.
Preparation and realism are key to weathering the credit storm. The impact that the crunch will have on new developments is yet to be fully understood but recognition of the dangers ahead and planning should see us through to the other side. Meanwhile, our best defence is to remain positive and maximise opportunities that already exist.
Stephen Gee, managing partner, John Rowan and Partners