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Building Products January 2018

INDUSTRY ANALYSIS JANUARY 2018 | BUILDING PRODUCTS 11 house builder sentiment. The largest factor underpinning the sector, though, is the government’s Help to Buy policy. The equity loan has been used on 135,000 purchases since its introduction in April 2013. This represents just 3% of total property transactions but equates to one-third of new build completions and more than half of sales for three of the volume house builders. While its continuation, until March 2021, was bolstered by £10 billion worth of funding at the Conservative party conference, confirmation of what will happen post 2021 is being sought by the industry as this period enters the scope of house builders’ strategic planning. In contrast to the growth forecast in infrastructure and private housing, the fortunes of commercial construction in 2018 appear much less optimistic. New orders in the offices subsector have fallen in each of the five quarters following the EU referendum and are 21% lower than in the preceding five quarters. Although site activity is high at the moment, especially around large city centre regeneration in Birmingham and Manchester, once current projects end, there is less in the pipeline to replace them. Contract awards data, the Markit/CIPS purchasing managers indices and the Deloitte crane survey all echo our forecast of a fall in activity in 2018. It is a similar outlook for other sectors reliant on a large up-front investment, where such decision-making on building new factories or retail premises is being constrained by the greater macroeconomic uncertainty brought about by Brexit. Moreover, the public sector project pipelines are also diminishing. Once work is completed on the two £136 million proton beam treatment centres in London and Manchester and the £480 million Royal Sussex County Hospital, there are no projects of a comparable size to replace them. On the back of this, falls in output are also expected in the industrial factories, commercial retail, and publicly funded health and education sub-sectors. Beyond its effect on business confidence and investment intentions, Brexit also raises two key issues for construction. First is whether there will be restrictions on the movement of EU labour, second is the potential barriers to trade in materials and products. Overall, around 9% of the construction workforce is from the EU, but this proportion increases drastically in London (27%) and in house building, where a recent census by the Home Builders Federation (HBF) found 18% of the workforce is from the EU, rising to 50% on house building sites in the capital. For on-site occupations such as groundwork, labourers, bricklayers and the finishing trades in the UK regions, the proportion of EU workers rises to one-third. Any potential restrictions on new entrants to the labour market, based on either earnings or skills thresholds, are likely to be to the detriment of these occupations and combine with the existing demographic issue of 500,000 UK workers set to retire within the next five -10 years. If we consider that 80% of the construction products and materials used in the UK are domestically produced, any trade barriers may not seem that much of an issue. However, imports play a vital role in terms of filling gaps in domestic capacity, during recession for example, multinational supply chains are integrated and there are some materials we cannot produce here. The recent depreciation in Sterling has shown that the supply chain can manage any cost increases that may arise from import tariffs. It is non-tariff barriers, such as customs checks and delays at ports – variable in length from day to day – that will require a change from the just-intime business models currently in place. To what extent, is still unknown. While 2018 will be the year that some sectors of construction start to slow, it will also (hopefully) be the year we get more clarity on these widerreaching Brexit issues. Work volumes will remain at a record-high level


Building Products January 2018
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