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A slow start to the year?

The RICS UK Residential Market Survey for January highlights that 2019 is off to a slow start, showing a subdued backdrop as enquiries, sales and new instructions all fall further.

In the near term, contributors sense little prospect of a turnaround, as concerns over the potential impact of Brexit, alongside affordability constraints continue to cause buyers and sellers to hesitate. However, expectations at the 12-month horizon are modestly positive.

During January, new buyer enquiries fell again at the headline level marking the sixth successive monthly decline. What’s more, demand declined to some degree across virtually all parts of the UK. Scotland was a slight exception, but even there the trend was only flat.

Alongside weakening demand, the number of new properties being listed on the sales market also deteriorated, with the net balance reading of -25% the weakest since July 2016.

Rounding off a subdued month for market activity, agreed sales also fell further, with the pace of decline seemingly gathering momentum compared to December.

Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East where affordability remains stretched and the tax changes are most penal remains to be seen.

A brighter outlook for the next 12 months?

Sales expectations for the coming three months remain downbeat, both at the national level and across most parts of the UK with expectations negative in 11 of the 12 regions/countries covered. The outlook over the next 12 months is stronger, however, as a headline net balance of +16% of contributors are expecting sales to rise.

Prices also continued to slip, as the headline price indicator declined for the fourth month in succession, with the net balance easing to -22%. When broken down, London and the South East continue to display the weakest readings, followed by East Anglia and the South West. In these regions the strong price growth over the past six years has left affordability looking stretched, with the high prices a key factor hampering demand. Elsewhere, prices continue to rise in Northern Ireland and Scotland.

Mixed news in the lettings market

Across the lettings market, tenant demand rose modestly in the three months to January (seasonally adjusted series). It has now picked up in each of the last three quarters. Nevertheless, nationally new landlord instructions continue to dwindle, remaining in negative territory for an eleventh successive quarter. Respondents expect rents to rise by roughly 2% over the next 12 months, and at the five-year horizon, averaging 3% each year.

Simon Rubinsohn, RICS chief economist, said “Although some contributors to the survey have taken comfort from a better start to the year than anticipated, a larger proportion are continuing to find the market a difficult one in which to do business.

“Resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East where affordability remains stretched and the tax changes are most penal remains to be seen.

“Meanwhile, the lettings market is continuing to see instructions fall away as investors respond to the emerging fiscal and regulatory landscape. This is resulting in feedback consistent with further increases in rents across the country, to a greater or lesser degree, over the next 12 months.”

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Alarm bells sound for construction as output plummets

Rising costs and uncertainty relating to Brexit are to blame for the sharp drop in output growth in January 2019, the Federation of Master Builders (FMB) has said in response to the latest PMI data.

The January 2019 PMI data revealed a fall from 52.8 in December to 50.6 in January, against the neutral reading of 50.0. January data pointed to a loss of momentum for the UK construction sector, with business activity growth grinding to its weakest for ten months.

Commenting on the results, Brian Berry Chief Executive of the FMB, said “The latest PMI data shows a slowdown in growth in construction with business activity growth easing to its weakest for ten months. The ongoing political uncertainty is partly to blame for this set-back. Political uncertainty is the enemy of construction firms that rely on the spending power of homeowners to commission home improvement projects. The UK is set to leave the EU next month, and yet we are still none the wiser about what the future holds. Given these intense headwinds, it should not be surprising that the sector suffered such a sharp decline.”

“Alongside the political uncertainty, the cost of doing business is also rising for construction firms up and down the country. Material prices have been rising steadily since the depreciation of sterling following the EU referendum. Looking ahead, material prices are expected to continue to cause a headache for the construction industry with recent research from the FMB showing that 87% of builders believe that material prices will rise in the next six months. What’s more the construction skills crisis means that key trades are extremely difficult to recruit and the upshot of this is rising wages in construction. Tradespeople know they can command higher salaries than they did preciously as workers are scarce, and this means a squeeze in margins for firms. This will only worsen if the post-Brexit immigration system that the Government has planned goes ahead. If the sector isn’t able to draw upon crucial EU workers of all skill levels, who have so far served to mitigate this shortage, the slowdown of growth will continue.”

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Construction firms lose £1.8bn in invoice fraud

According to the research published by Tungsten, construction firms lose £1.8bn in invoice fraud Cyber-crime costing average construction business £1,948 per year. This amounts to £1,948 per construction business.

Concern about the scale of the fraud is greater in the construction industry than any other sector, with a staggering 71% of business owners troubled by its increase, compared to a national average of 54%. They view it as the single biggest threat facing their business – more so than losing a major contract, a member of staff or competitor activities.

Of the construction companies surveyed, 60% have received a fraudulent or suspicious invoice  – this is significantly more than any other sector and the national average of 47%. Tactics have included: viruses embedded in attachments; unknown invoices attached to an email or sent by post; false changes to bank details and sending duplicate invoices.

Tungsten’s research exposes the need to crack down on fraud in the UK and is backed up by the Government, who in response launched a taskforce in 2016 to combat fraud of all types. The Joint Fraud Taskforce consists of representatives from the City of London Police, National Crime Agency, Financial Fraud Action UK, the Bank of England, and chief executives of the major banks.

Worryingly, not every company is aware of the high stakes – 11% of construction businesses would take no action if they received a suspicious invoice and 6% wouldn’t know what to do. Only around half (54%) would contact the police or a reporting service like Action Fraud, showing that there is still an education job to do in terms of knowing how to handle cyber-crime.

Richard Hurwitz, CEO at Tungsten, said “Construction firms face all manner of challenges, and it’s telling that cyber crime looms as one of the biggest. It seems particularly prevalent within the construction industry possibly because many contractors have minimal back office support and therefore it is easier for fraudsters to get away with their tactics. What’s most troubling is that it needn’t be like this as there are steps companies can take to protect themselves.

“Technology such as electronic invoicing can help construction companies battle invoice fraud as only confirmed suppliers can upload their invoices and then these are validated before they are paid, potentially saving firms thousands of pounds. Tungsten currently handles more than 15 million invoices a year, with firms in 192 countries around the world transacting across the network.”

Pauline Smith, Head of Action Fraud, the UK’s national centre for reporting fraud and internet crime, said: “It is important that employees are made aware of invoice scams and are ready to recognise the signs of fraud. Incidents of invoice fraud are underreported and therefore it is difficult to know the true scale of this fraud type. However what we do know is that this type of fraud prevails across all types of business and no one type of industry is immune. Those organisations that are worried they may fallen victim to fraudsters should always report to Action Fraud.”

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New research shows how used tyres can help protect bridges

In UK alone, 50 million tyres are discarded each year. With an ever increasing volume of vehicles in the world, the disposal of spent tyres is a serious issue. Often dumped in landfill, these tyres pose untold risk to health, safety and the wellbeing of our environment. However, used tyres do have their uses. For example, one such material that is made from discarded tyres could double the resilience of structures in disaster prone regions, ensuring safe and sturdy infrastructure whilst simultaneously reducing waste.

New research published in the Journal Earthquake Engineering and Structural Dynamics has described a new method of protecting bridge infrastructure in disaster-prone regions using used tyres that may otherwise be sent to landfill.

Academics from the Universities of Surrey and Thessaloniki (Greece) looked at how bridges, in particular Integral Abutment Bridges (IABs) react to stress and how simple measures could be taken to protect this vital infrastructure from wear-and-tear, as well as in the event of extreme dynamic impacts such as earthquakes.

Lead author, Dr Stergios Mitoulis of the University of Surrey explained, “Bridges are important infrastructure assets, which are costly to construct and maintain. Their maintenance is a major challenge in most developing countries and significant investment is required to ensure they remain safe and usable, especially in disaster situations.”

“In developing countries especially, there is a need to build bridges using simple and inexpensive methods. This had led to a type of bridge known as an integral bridge becoming increasingly popular which is a simple frame structure with no extra parts such as bearings or expansion joints, it is maintenance-free but has limitations meaning that they can only be used over short lengths. Where the bridge meets the land the soil moves and shifts and in times of stress this can lead to extended damages or collapse. The longer the bridge, the greater the risk of collapse.”

The challenge for the researchers was to find an inexpensive and effective material to bolster bridges, providing support but also providing a buffer able to withstand the force of earthquake situations regardless of the length of the bridge. The team turned to conventional tyres, of which 50 million are discarded in the UK alone each year, and which were banned from the UK’s landfills in 2009. The waste tyres will be used to create a new product, called the isolator, namely a flexible and elastic layer of reused tyres. This flexible layer will be used to absorb movements, reducing costs of repair.

“As with many of the challenges we face in engineering, the answer came from an unexpectedly simple source,” explained Dr Mitoulis. “We were looking for a readily available, cheap and effective material that would keep its cool under pressure. That’s when we thought about the possibility of recycling common tyres and putting to good use a material destined for landfill. We use old tyres to create an aggregate that effectively provides double the performance of conventional designs when movements due to earthquakes or temperature changes are simulated.”

The new design will eventually allow for safer and sturdier bridges in areas that do not have the means to erect expensive structures that require extensive maintenance. The team will now look for new market opportunities in diverse infrastructure assets that are expected to be benefitted by these recycled isolators, including quay and retaining walls and building foundations.

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Robots to fix underground pipes and help cut roadworks

£26.6 million investment to build micro robots that can help repair the UK’s vast underground pipe network preventing disruptive roadworks and using robotics in hazardous work environments to avoid workplace injury.

New micro robots will be built to repair the UK’s huge underground pipe network, significantly cutting the disruption caused by the 1.5 million road excavations that take place every year.

Scientists from 4 British universities will use £7 million government investment to develop 1 cm-long robotic devices that use sensors and navigation systems to find and mend cracks in pipes. The traffic closures and disruption to businesses of these roadworks is estimated to amount to more than £5 billion. A further 14 projects backed by £19.6 million government investment, through the Industrial Strategy Challenge Fund (ISCF), will see robots sent to hazardous work places such as offshore wind-farms and nuclear decommissioning facilities. Researchers will test new technologies, such as the use of artificial intelligence (AI) software on satellites in orbit to detect when repairs are needed, and drones for oil pipeline monitoring.

Science Minister Chris Skidmore said “while for now we can only dream of a world without roadworks disrupting our lives, these pipe-repairing robots herald the start of technology that could make that dream a reality in the future

“From deploying robots in our pipe network so cutting down traffic delays, to using robots in workplaces to keep people safer, this new technology could change the world we live in for the better. Experts in our top UK universities across the country are well-equipped to develop this innovative new technology.

“We have put research and development at the heart of our modern Industrial Strategy, with the biggest boost to funding in UK history to create high skill jobs and boost productivity across the country.”

UK Research and Innovation (UKRI) Chief Executive, Professor Sir Mark Walport added “The projects demonstrate how robots and artificial intelligence will revolutionise the way we carry out complex and dangerous tasks, from maintaining offshore wind farms to decommissioning nuclear power facilities.

“They also illustrate the leading role that the UK’s innovators are playing in developing these new technologies which will improve safety and boost productivity and efficiency.”

The £26.6 million government funding boost is part of the modern Industrial Strategy, investing in the technologies of tomorrow and creating high skilled jobs across the country. The UK already develops world-leading robotics technologies, and these projects delivered by UKRI will help make this a sector for UK businesses to grow and dominate international markets.

Health and Safety Executive Chair Martin Temple concluded “The key purpose of the Health and Safety Executive is to save lives and prevent workplace injury and ill health. To achieve this, we need businesses to work with us and to be innovative in their thinking around managing risk in the workplace. New and emerging technologies are shaping our working environment.

“As a regulator we want to encourage industry to think about how technologies such as robotics and AI can be used to manage risk in the workplace, safeguarding workers both now and in the future world of work.”

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A blow to the UK’s construction industry?

A potential exit from the European customs union and the single market without a transitional period could have a significant impact on supply chains say leading accounting, tax and advisory firm Blick Rothenberg.

Alex Altmann, Partner and head of the German desk at Blick Rothenberg, said “The construction industry in the UK is dependent on foreign investment, overseas suppliers and European workers.

“Over 60% of all building materials used in the UK are imported from the EU. If the UK ceases its membership of the customs union, the cost of bringing building materials, machinery and other goods from the European mainland would significantly increase due to lengthy import procedures, potential duties and the administration of import VAT to be paid.”

“Not being a member of the single market could see free movement of workers being compromised and a shortage of the workforce would be the result, leading to higher costs for companies hiring workers on UK construction sites. Nationwide, European nationals account for around 10% of the UK construction industry’s workforce. On building projects in London this figure stands at around 40%.”

The UK Government plans to invest significantly into infrastructure in the next 20 years, with projects such as HS2, Crossrail 2 and a new runway at Heathrow airport. The UK has also a dramatic housing shortage and as reported in the media England alone requires about 3 million new homes by 2040.

“The UK’s construction market is very competitive with major European construction and project management companies bidding for building work, with Germany being one of the strongest international market participants. An exit from the European customs union and the single market could have a challenging effect for the UK’s construction industry”

“Many building projects in the UK are European ventures. From clients, investors and design teams to main contractors and specialised craftspeople – the UK’s construction industry is largely based on the EU membership. Ultimately the loss off access to the single market could result in the UK being a less competitive player in the international construction industry.”

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Bringing beauty into the built environment

A commission to champion beautiful buildings as an integral part of the drive to build the homes communities need has been recently announced by the Communities Secretary Rt Hon James Brokenshire MP.

The ‘Building Better, Building Beautiful’ Commission will develop a vision and practical measures to help ensure new developments meet the needs and expectations of communities, making them more likely to be welcomed rather than resisted.

This move follows the government recently rewriting the planning rulebook to strengthen expectations for design quality and community engagement when planning for development. The new rules also ensure more consideration can be given to the character of the local area.

This commission will take that work further by expanding on the ways in which the planning system can encourage and incentivise a greater emphasis on design, style and community consent. It will raise the level of debate regarding the importance of beauty in the built environment.

The commission has 3 aims:

  • To promote better design and style of homes, villages, towns and high streets, to reflect what communities want, building on the knowledge and tradition of what they know works for their area.
  • To explore how new settlements can be developed with greater community consent.
  • To make the planning system work in support of better design and style, not against it.

Communities Secretary Rt Hon James Brokenshire MP said “Most people agree we need to build more for future generations, but too many still feel that new homes in their local area just aren’t up to scratch.

“Part of making the housing market work for everyone is helping to ensure that what we build, is built to last. That it respects the integrity of our existing towns, villages and cities.

“This will become increasingly important as we look to create a number of new settlements across the country and invest in the infrastructure and technology they will need to be thriving and successful places.

“This commission will kick start a debate about the importance of design and style, helping develop practical ways of ensuring new developments gain the consent of communities, helping grow a sense of place, not undermine it. This will help deliver desperately needed homes – ultimately building better and beautiful will help us build more.”

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Construction bosses fear EU workers won’t return to UK after Christmas

The UK construction industry is asking its highly valued EU workers, who might be travelling home for Christmas, to please come back after the Christmas break, according to the Federation of Master Builders (FMB).

Research focusing on how the bosses of small and medium-sized (SME) construction firms view their EU workers concluded that:

  • 85% of construction SME employers that employ EU workers say that these workers are important in allowing their business to maintain and expand its workforce
  • 76% of these firms say it would have a negative impact on the health of their business if any of the EU workers they employ returned to their country of origin, now or post-Brexit
  • 94% of firms describe the quality of EU workers they employ as ‘good’ or ‘very good’

Brian Berry, Chief Executive of the FMB, said “Our research shows that EU workers are vital to the success of the UK construction industry and our message to these individuals is clear – you are highly valued and we need you. Christmas is now upon us and there’s a risk that those EU migrant workers who go home to their home countries for the festive period might not come back. With Brexit looming large on the horizon, EU workers in the UK are facing high levels of uncertainty over their future. Furthermore, since the depreciation of sterling, their wages aren’t worth as much as they were previously. Construction employers are genuinely concerned that this mixture of uncertainty about the future and less money in their pockets will make the UK a much less attractive proposition that it was pre-referendum.”

“Ministers haven’t done enough to reassure EU workers that they have a future in the UK. In our ‘Construction Industry Brexit Manifesto’, seven of the major trade bodies have called on the Government to embark upon a communications campaign that makes clear to our EU workers that they’ll have no serious impediments to gaining settled status. Indeed, both the Government and the industry need to do all that they can to put a positive message across. In the medium term, the construction industry can and should do more to attract and train a greater proportion of domestic workers. However, such is the extent of the current construction skills shortages, we’ll continue to need to draw upon a high number of EU migrant workers post-Brexit if the Government wants to meet its target for new homes and infrastructure projects.”

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Government plan to address long-term housing challenges

Homes England recently set out how they intend to improve housing affordability through a new five-year Strategic Plan – helping more people access better homes in areas where they are needed most. Buildingspecifier takes a look:

The government plan, which runs up to 2022/23, outlines an ambitious new mission and the steps the national housing agency will take, in partnership with all parts of the housing industry sector, to respond to the long-term housing challenges facing the country.

The new plan sets out far-reaching delivery objectives:

  • Unlock public and private land where the market will not, to get more homes built where they are needed
  • Ensure a range of investment products are available to support housebuilding and infrastructure, including more affordable housing and homes for rent, where the market is not acting
  • Improve construction productivity
  • Create a more resilient and competitive market by supporting smaller builders and new entrants, and promoting better design and higher quality homes
  • Offer expert support for priority locations, helping to create and deliver more ambitious plans to get more homes built
  • Effectively deliver home ownership products, providing an industry standard service to consumers

Speaking about the updated plans, Communities Secretary Rt Hon James Brokenshire MP said “This government is committed to delivering 300,000 homes a year by the mid-2020s and help more people get on the housing ladder. Homes England is at the heart of these plans.

“I welcome their comprehensive vision that sets out how through their powers and expertise they will maximise Government investment to deliver the homes communities need.”

Sir Edward Lister, Homes England Chairman, added “Ultimately, we need to disrupt the housing market. Homes England plans to be bold, creative and think big. We hope the whole of the housing sector – big and small, up and down the country – will join us for the next five years and beyond.”

Nick Walkley, Homes England Chief Executive, concluded “The new Homes England is all about making homes happen – and our new 5-year plan sets out our ambitious new approach. We are committing to boosting housing supply, productivity, innovation, quality, skills and modern methods of construction to help make a more diverse and resilient market. In return, we are calling for partners and the wider industry who share our ambition to challenge traditional norms and build better homes faster.”

The five-year Strategic Plan follows the Budget announcement of seven more strategic partnerships with housing associations, which will deliver an additional 13,475 affordable homes by March 2022.

The new partnerships will secure a total of £653m in funding from the Affordable Homes Programme, delivered through Homes England, including homes for social rent in areas of high affordability pressures.

This is in addition to the first eight strategic partnership deals announced in early July, bringing the total number of additional affordable homes that will be delivered to 27,755.

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Price-hikes on skips and diesel prove problematic for builders

According to the latest construction industry research, nearly two-thirds of builders have had to pass skip price increases on to clients and a fifth have had to pass on diesel price rises, making home improvement projects more expensive for home owners. Building Specifier delve into the details provided by experts the Federation of Master Builders.

The key results from the FMB’s research into skip prices are as follows:

  • Three quarters of builders have said that the price of skips has risen over the past 12 months
  • The average cost of an eight yard skip has gone up by £24 over the past year, meaning an additional cost of £360 for the average extension
  • Nearly two-thirds of builders have had to pass skip price increases on to clients, making home improvement projects more expensive for home owners
  • Three quarters of builders said that skip price rises have squeezed their margins

The widely-reported hike in diesel prices is also starting to bite and is having the following impact on small and medium-sized (SME) construction firms:

  • Nearly half of construction SMEs have made lower margins on projects
  • Nearly a fifth (17%) have been forced to raise the prices they charge clients
  • More than one in ten have had to turn down jobs they would have normally accepted as they are too far away
  • 10% have taken steps to reduce vehicle use

Commenting on the research, Brian Berry, Chief Executive of the FMB, said “The increase in the price of skips and diesel is bad news for builders and home owners alike. Nearly two-thirds of builders have had to pass skip price increases on to clients and a fifth have had to pass on diesel price rises. This has made home improvement projects more expensive for home owners. What’s more, the impact of the rising price of skips could have an impact on our communities through a rise in fly-tipping. No matter how much the price of skips might increase, there is never any excuse for fly-tipping and any individuals found doing so should be severely reprimanded. In 2016 and 2017, more than one million incidences of fly-tipping were dealt with by councils in England and the last thing anyone wants is for this number to increase.”

“The increase in the price of skips and diesel have come at a bad time for the UK’s builders. The cost of doing business is rising more generally for construction firms. Wages and salaries are all rocketing because of the ever-worsening skills shortages in construction. What’s more, material prices have been rising because of the depreciation of sterling following the EU referendum. Looking ahead, material prices are expected to cause an even bigger headache going forward, with recent research from the FMB showing that almost 90 percent of builders believe that material prices will rise in the next six months. We are advising builders to price jobs and draft contracts with this plethora of price rises in mind to avoid a further squeeze on already razor thin margins.”

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