Construction's dreaming of a white Christmas

This morning’s heavy frost may raise hopes among many in the building industry of a full-on White Christmas, because, at least in business terms, everything’s turning a bit too hot, hot, hot.

I’m told that one housebuilder hailing from the Home Counties has muttered about difficulties in sourcing London Stocks. If said developer didn’t have the excuse of a long cold snap holding up sites, finding the bricks to build any homes on them could become the proverbial pain in the ariss. Brickmakers, as highlighted in my last blog, are going to have to work flat out during what has been for several years a quiet winter in order to rebuild dwindling stocks.

Looming brick shortages aren’t restricted to housebuilders; a large national contractor has been telling its investors “Even if you can find brick layers it is increasingly hard to find bricks”. The latest materials stats from the Department for Business shows brick stocks in October falling to 10.6 weeks worth of deliveries, down by 6% on the previous month, by 37% year-on-year and by a whopping 67% since the 2008 peak of 32 weeks.

Aecom puts central London tender price inflation at 2-5% for 2014 and 3-6% for 2015. I’m no QS but, if you ask me, even the top end of both ranges look on the light side

Bricks and brickies are just one element in a tightening supply chain highlighted last week in a report by consulting giant Aecom, which focused on the London market. Concrete, joinery, cladding, drylining, mechanical, electrical and plumbing contractors were also cited. (That sounds like most of the stuff that goes into most buildings.)

This reflects rising workloads but also shrinking capacity, with some half a million souls having left the industry since 2008. Aecom’s survey of major players like Laing O’Rourke, Skanska and Lend Lease found that they now have secured 70% of their budgeted orders for 2014, compared with 38% when asked at the same point in 2011, looking into 2012.

Another survey, out yesterday from training body the CITB, shows that 42% of UK construction companies are struggling to recruit staff.

This should inevitably lead to cost inflation and delays. Aecom puts central London tender price inflation at 2-5% for 2014 and 3-6% for 2015. I’m no QS but, if you ask me, even the top end of both ranges look on the light side.

Carillion’s trading statement today emphasised how selective it is in bidding for UK construction work (but also indicating its much vaunted scaling back of this business has run its course). Lawyers for the bigger groups will presumably protect themselves against most litigious flack should prices and delivery times run over budget.

Not so, possibly, for the small and mid-sized firms, that are more likely to take any claims on the chin. I was at an annual industry drinks bash last night that is frequented by an eclectic mix of insurance industry people and smaller builders. One that knows about these things expressed some surprise that more companies hadn’t failed so far; recovery is a notorious time for bankruptcies. It wasn’t that the banks had turned feelier and touchier, he suggested; it was that, starved of back office investment, they hadn’t yet got their acts together to process insolvencies. And his definition of the turnover of a “small” contractor stretched to nine digits.

So, as Dean Martin would put it, let it snow, let it snow, let it snow.

Alastair Stewart is Building Analyst at Progressive Research. Follow him at www.BuildInsight.co.uk and on Twitter @BuildInsight