People and money

Last week’s London Real Estate Forum was buzzing with confidence. The venue was packed with project models for schemes that will be built and with developers brimming with confidence. Space is in short supply, so rents are rising, and London continues to grow - what’s not to like? The challenge for clients has shifted from finding the tenant and the finance, to securing scarce contractor resource - with all of the implications for procurement, programme and cost highlighted in last week’s Building.

The problems don’t just apply to the commercial sector. Last week, the Office for Rail Responsibility published its progress report on the first year of Network Rail’s delivery of CP5, highlighting delayed projects and soaring costs. Even in industry sectors that can boast certainty of workload and a focus on collaborative working, there are problems associated with resourcing at all levels, through design and management, right through to the most junior apprentice.

At the Real Estate Forum, EC Harris presented a piece of research on housing markets which shows that, even if all of the planning barriers against housing development were lifted, there simply isn’t enough physical capacity in the UK to deliver housing to meet the need. The industry workforce has shrunk by 370,000 since 2008, but sector unemployment is below 4%, meaning there is barely capacity to deal with churn.

The fact that particular sectors depend on specific trades makes the problem much worse. In 2014, the problem for many developments was sourcing the right kind of brick from depleted stock - now it is finding the mason. There are barely 70,000 bricklayers in the UK market at the moment and about 50% work in housebuilding. To deliver 200,000 homes would need another 53,000, meaning over 80% of this specialist workforce would be focused on one sector.

Not only does that prospect spell trouble for other sectors that need these skills, but also points to the long-term job insecurity of bricklayers. Would you enter a trade that is likely to crash two or three times during your career?

There are short-term solutions to the labour resource problem - retraining, reallocation across sectors and even greater use of migrant labour. However, none of these address the fundamental market conditions which disincentivise suppliers from investing in technology, training and client relations. So while the open, international labour markets will continue to be a key part of the industry’s response, there needs to be much more emphasis on creating the conditions to invest in people and productivity.
At the beginning of the downturn, Constructing Excellence published Never Waste a Good Crisis, highlighting the stark choices facing clients and their suppliers in their choice of procurement strategy. The few clients that were in a position to adopt the collaborative principles highlighted in the report were only able to do so by having a long-term work-bank that could be used to sustain a workforce and relationships. These are now securing significant gains through collaboration, elimination of transaction costs and investment in greater productivity.

However, few clients outside of the utilities can make that commitment, being reliant themselves on cyclical demand and funding. As a result UK plc gets an industry shaped to respond to need - swinging from bust to boom so much that even clients with large, attractive, counter-cyclical portfolios of work now struggle to attract interest from maxed-out contractors.

So while current industry challenges focus on people - both resources and relationships - we need to look to the money to create the stability that the industry needs to retain and invest in its people and in becoming more productive.

The housebuilding industry would be a great place to start. What would have happened if house production had been sustained at high levels during the downturn? Build costs would have been low, there would be more supply, so housing would be more affordable. Jobs would have been retained, protecting capacity needed for the recovery. Obviously this scenario couldn’t happen with “for-sale” housing, which is one reason why the rental sector should have a bigger role to play in a balanced housing market - a market driven by different sources of demand, and different sources of long-term money. How such a change could be achieved is complex and easy to put into the “too difficult box”. But neither the public nor private sector is likely to deliver much counter-cyclical workload in the future, so when the seeds of the next downturn are sown, the triggers for the next crash will also be in place.

Construction needs to grow now, particularly in housing. But the existing “for sale” model is self-limiting. Housing should be delivered across cycles and if the right long-term rental models can be developed, then construction and housing markets will be better equipped to deal with future boom and bust. People and money have always been inseparable in construction. Making them work together, rather than in opposition, is one way to ensure the industry is fully fit when it is most needed.

Simon Rawlinson is head of strategic research and insight at EC Harris