Construction output is at an all-time high but with skills and materials shortages creeping up on us, we need to be prepared for a downturn
British construction is enjoying a golden age. Employment has grown from 1.4 million people to 1.8 million over the past 10 years, so the industry is playing a large and growing role in the economy.
Apart from a modest 1% decline in 2005, output has been on the increase since 1993, reaching £114bn in 2006. This is the longest sustained period of growth in 100 years – although I’m not sure how much accurate measurement took place in 1906.
We undoubtedly have a lot to show for this growth – successful firms, tall buildings, trendy apartments, quayside developments, wealthy partners and directors, record rents and yields. Forecasts suggest the industry will continue to grow at about 3% a year over the next few years so there are more profitable years ahead.
But have we paid a price for this success? Skill shortages have emerged owing to the lack of investment in training and this has made staff recruitment a problem. In some cases, long-term goals have been sacrificed because of short-term market pressures. In addition, prices are rising, as demand is growing faster than supply.
There are also concerns about whether London can supply enough labour for the Olympics and the pressure is on planners to allow buildings to be built in unsuitable locations.
The construction industry needs to start planning for the inevitable downturn it will face over the next few years. The London Olympics is seen as a big work generator but, in reality, even at its peak it will account for less than 5% of annual output.
What will the end of this boom – even if it is a soft landing – do to the industry? The last recession, in the early nineties, took place before many people currently in senior management roles were even in decision-making positions.
At that time, developers disappeared regularly, empty buildings were commonplace, speculative development was only for the brave or foolhardy and work for construction companies was squeezed.
As a result, many jobs were lost, firms became bankrupt and some were taken over. Skilled people had to move to other industries to utilise their skills in areas such as project management. Ironically, the staff shortage this time has forced the construction industry to look at other sectors to supplement their recruitment.
Companies will disappear, jobs will go and there will be empty buildings aplenty. However, the industry can be better prepared for a downturn this time
It may not be any different this time when the downturn hits. Some effects are inevitable, as shown in any number of sectors over the years. Companies will disappear, jobs will go and there will be empty buildings aplenty, given the typical two-to-three years between planning application and completion.
But what can we do to mitigate these effects? History is often forgotten and while success has many parents, failure is an orphan. However, I believe the industry can be better prepared for it this time. There will have been at least 15 years since the last recession and there is no substitute for learning from experience and mistakes.
The profile of the industry undoubtedly needs raising. Construction has never been seen as glamourous and the sale of large companies and their subsidiaries – Amec and Mowlem, for example – suggest that the City is not enamoured of it, either.
Nor do the corporate owners really understand the risks and the relatively low overheads that characterise construction, especially on the civils side.
One of them was that “the CITB, transformed from a government quango into ConstructionSkills, responds slickly to the industry’s commercial needs and is so well supported by the industry that it is self-funded and we can contemplate abolishing the levy”.
This is one of the ways to ensure that the imbalance between skills supply and demand is eliminated in an industry that has not managed the process very soundly in the past.
Firms need to become as efficient as possible with well-skilled and multidisciplined teams to ensure the UK construction industry remains at the forefront of the world.
Sir Digby Jones is the new minister for trade promotion and former director-general of the CBI