Construction headed for 'perfect storm'

The analysis by collaborative online construction site Designing Buildings Wiki found that in the first half of 2012 total output dropped to a level 9% lower than it was in 2002.

The analysis is based on a compilation of current data, including the ONS construction statistics, government planning figures and the RIBA future trends survey.

It said that if the public sector continued to shrink at its current rate, the private sector would have to grow by more than a third of a billion pounds a quarter just to keep total output at its current level.

If the public sector continued to shrink, and the private sector did not grow to fill the void, the industry will enter a double dip recession, the analysis said.

David Trench, chairman of Designing Buildings Wiki said: “Until the beginning of this year, the construction industry had held up pretty well, supported by increases in public spending. But in the last three quarters, public spending has dropped, and if the current trend continues we are headed for a perfect storm.

“Our analysis shows that to make up for public sector cuts, the private sector will have to increase output by more than a third of a billion every quarter just to maintain the current level of total output. The phenomenal level of private sector growth required to actually bring about a recovery could only be achieved through a clear, combined Government/industry investment policy, and it needs to happen now.”

He also urged the government to:

• Re-introduce a selective employment tax giving tax breaks for employees engaged in manufacturing. To help redress the balance between manufacturing and service industries and act as a catalyst forconstruction companies to seek out ways of prefabricating assemblies off site in factories.
• Re-introduce stock relief allowances to encourage continuity of supplies instead of the current stop/go “just in time” policies that hamper efficient production right up the supply chain.
• Avoid focusing on new grand projects. Instead kick start those projects that have been placed on hold, that have planning consent and that have a completed design. These are the projects where funding dried up following the banking crisis.
• Re-introduce capital allowances to get things moving and encourage companies to invest re-introduce generous capital allowances not only for plant, machinery and stock but for refurbishment of premises.

Trench said: “The construction industry accounts for around 8% of GDP and is the fundamental lynch pin in getting the UK out of recession. The full effects of the Government’s austerity plans are yet to be seen and our analysis shows that once they do, total output levels could fall off a cliff if the private sector does not pick up.

“The Government is beginning to introduce policies that could help, such as re-assessing planning obligations for stalled projects, the introduction of the infrastructure investment guarantee fund and the funding for lending scheme, but it could be too little too late with the UK not reaping the rewards until at least 2013.

“The success of the London Olympics has shown us that the UK construction industry has the ability to lead the world but the Government needs to continue this momentum by encouraging financial institutions to lend. We need to facilitate growth in the private sector and unless the whole industry is content with crossing its fingers and hoping for the best, the time for action is now.”

Trench urged the government to adopt five key solutions, including re-introducing tax relief on mortgages, which he said would encourage house builders to dust off their mothballed schemes to meet the surge in demand and affordability.