Is the optimism that 2015 brought with it already on its way out?
In the final week of last year, Building celebrated, with some relief, the fact that for the industry the curtain had come down on recession, with the stage set for a more optimistic 2015. So, given that many of those working in the sector will enjoy a well-earned intermission at some point over the next couple of weeks, now seems an appropriate point to take stock of what the first half of the year has heralded for the industry. And, beyond that, what’s set to top the agenda when this all-too brief respite is over.
In terms of growth in work, 2015 has so far not disappointed. In the first three months, output reached £31bn, up 4% on the year before. Early indications show that the election period did not drag down work as much as feared; and instead, the unexpectedly decisive result and the perception that a Tory government will be good for private investment has helped spur confidence to a new high. In the latest CIPS business confidence survey, 62% of respondents forecast growth in construction output over the next 12 months: the highest level in 11 years.
This is not to say that the downturn’s damaging legacy does not continue to send waves through the sector. High-profile contractors such as Balfour Beatty and Sir Robert McAlpine are having to renew their businesses to move on from the damaging legacy of problem work won during recession, and this week Morgan Sindall became the latest contractor to demonstrate that those problems are not yet over.
Meanwhile, high-profile supply chain failures - such as the fall into administration of PC Harrington Contractors - only underline the power that financially sound, reliable suppliers now wield in the market. For clients, securing the right supply chain at anything like approaching what they deem to be the right price will continue to be a headache in the second half of the year.
The next few months will be crucial to the industry’s market expectations for next year
Moreover, while the new government has spurred general business confidence, for those in construction the administration has revealed a damaging alter-ego in its swift decimation of a series of policies that the industry was relying on to underpin that growth agenda - with nothing, as yet, put in their place. Particularly concerning is the fact that the types of work affected - housing, green building and infrastructure - are those which are integral to the long-term economic and environmental sustainability of the country’s built environment.
The tearing up of housing associations’ 10-year rents settlement has fuelled fears that affordable housing will continue to fail to meet demand, particularly given concern over the impact of the right to buy policy on housing stocks. Details around right to buy, which will be published in autumn’s housing bill, will be nervously awaited by those involved in the sector.
The other policy area where the industry will hope for swift clarity, but wait with trepidation, is on a way to drive retrofit now that the government has pulled funding for the Green Deal. Peter Bonfield, the BRE chief executive charged with leading a review into the issue, suggested this week that pilot initiatives could be in place in two to three months. For those firms trying to maintain capacity in the market, progress cannot come soon enough.
On top of this, the government will be under pressure from industry to provide answers to questions arising from its unclear stance on two further recent developments. One is its own announcement of the introduction of a pan-industry apprenticeship levy, and what this will mean for the future of the existing levy in construction. The other is its equally vague noises about when and how it will respond to the Airports Commission’s recommendation that a third runway be built at Heathrow.
The next few months, then, will be crucial to the industry’s market expectations for next year and beyond - particularly with the Autumn Statement on the horizon, which will set out the government’s public spending priorities. Enjoy that Martini spritz while you can.
Sarah Richardson, editor