Historically, the manufacturing and construction sectors have been considered as key economic indicators in the Western world. They also have a close and undeniable affinity, with residential and commercial construction representing the ultimate manufacturing process. These markets have experienced mixed fortunes in recent times, however, with manufacturing being increasingly maligned while the construction sector continues to benefit from huge investment on a national scale.
So although manufacturing still accounts for 52% of the UK’s exports and employs in the region of 2.5 million people, construction has taken central stage in the private and public sector. This was reflected recently by the news that the UK government is planning to deliver a £2 billion stimulus package to the housing market, in a bid to initiate larger construction projects and optimise the number of new properties built over the course of the next 18 months.
Why has the Government Made such a Pledge?
In many ways, this sizeable commitment highlights the challenges facing the housing market in the UK. More specifically, a chronic housing shortage (which has helped to underpin disproportionate price growth nationwide) has forced the government to increase the pace and frequency of construction projects, in order to create an accessible and competitive market that appeals to first-time or low income buyers.
Their efforts have also been accelerated by a recent committee report, which suggested that while the UK is required to build 300,000 homes each year to meet the current demand, it has not constructed more than 200,000 for more than a decade.
In practical terms, the government is offering to incentivise property developers to increase the rate at which they build units, offering to purchase any that remain unsold. So rather than being conservative and adhering to the average build-out rate of 50 units per year, developers will be encouraged to construct all properties at once and list them for sale. It is hoped that this will create a swathe of affordable housing, while also empowering an ailing buy-to-let market that has created a vacuum in the rental market.
The Bottom Line for the Construction Sector: Will the Stimulus Package Achieve its aims?
It is easy to see the logic behind this initiative, even allowing for the slight decline in prices after the EU referendum vote. After all, it is the rising demand for property that has inspired recent growth in the residential and commercial property sectors, with market leader Bilfinger GVA recent reporting a 38% increase in operating profits in 2015.
This level of demand has been compromised by the ever-increasing cost of buying and renting homes, however, forcing the government to take action and use stimulus measures to manipulate the market and make it more accessible to buyers and tenants alike.
While it may be easy to comprehend the reasoning of the government and its private sector partners, the long-term viability of this initiative remains to be seen. After all, encouraging developers to increase their output beyond the build-out rate of 50 units per year will place a huge strain on them, potentially causing issues with quality and workmanship. These properties will also be incrementally smaller, posing challenges for those who want to invest in a family home.
Such considerations are already associated with new-builds, which have historically drawn complaints relating to build quality and placed a far greater onus on residents to introduce the elements of comfort that make a house a home. Even when residents invest in homely features such as memory foam mattresses and luxury sofas, however, the compact nature and restricted size of new-builds makes it hard to envisage living there with a family of any size.
Not only will the new stimulus package not help to resolve these issues, but it may even exacerbate them in some instances. So while it will help to ease problems relating to the availability and the accessibility of properties on the market, both private and public sector bodies must be prepared for others that emerge in their stead.
