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Southern builders are growing despite rise in costs

Construction firms in the south of England enjoyed strong growth in the first quarter of 2018, according to the Federation of Master Builders (FMB) South.

Key results from the FMB’s latest State of Trade Survey, which is the only quarterly assessment of the UK-wide SME construction sector, include:

  • In terms of workloads, expected workloads and enquiries, the combined indicator for the performance of South Eastern construction SMEs the balance of responses remained clearly positive at +17%, but fell by 6 percentage points compared with the previous quarter, indicating a slight fall in positive responses
  • In terms of workloads, expected workloads and enquiries, the combined indicator for the performance of South Western construction SMEs, the balance of responses rose 16 percentage points in Q1 2018 compared with the previous quarter, to +20%, indicating a marked increase in positivity
  • More construction SMEs predict rising workloads in the coming three months, up from 38% in the previous quarter to 49% in Q1 2018
  • 90% of builders reported increasing material prices in Q1 2018, this is the highest reading on record
  • More than half (58%) of construction SMEs are struggling to hire bricklayers and 55% are struggling to hire carpenters and joiners
  • Two-thirds (66%) of construction SMEs expect salaries and wages to increase during the next six months, up from 62% in the previous quarter

Phil Hodge, Director of FMB South, said “The first quarter of this year saw smaller building firms in the South of England enjoy growing workloads and enquiries. Although growth slowed slightly in South East, it remained in overwhelmingly positive territory. The South West also had a particularly strong quarter with workloads, expected workloads and enquiries improving since the final quarter of 2017. This is all the more pleasing given the stumbling blocks small builders had to contend with in the first quarter of the year. In March the south of England experienced heavy snow fall which forced construction sites across the region to close, some for weeks at a time. The positive growth enjoyed in the first three months of the year therefore shows how resilient the South’s construction sector currently is.”

“However, construction bosses know they need to keep their wits about them and not count their chickens just yet. These latest findings show that there are significant headwinds, which will continue to cause headaches for smaller building firms. More than three-quarters of firms think that material costs are expected to rise over the next six months, while two-thirds anticipate rising wages. The cost of doing business is going up and this will cause difficulties for firms across the South of England. These SME builders should have a key role to play in delivering the 300,000 homes needed every year in England alone. So, it is in everyone’s best interest that these firms continue to weather the storm of rising costs.”

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Small builders resilient despite material price hikes

The workloads of small and medium-sized (SME) construction firms grew slightly in the first three months of this year despite record numbers of builders reporting rising material prices, according to the Federation of Master Builders (FMB).

Key results from the FMB’s latest State of Trade Survey, which is the only quarterly assessment of the UK-wide SME construction sector, include:

  • Construction SME workloads remained positive in Q1 2018 but grew at a slower rate than in Q4 2017
  • The construction SME sector has now enjoyed five years of consecutive growth
  • More construction SMEs predict rising workloads in the coming three months, up from 38% in the previous quarter to 49% in Q1 2018
  • 90% of builders reported increasing material prices in Q1 2018, this is the highest reading on record
  • More than half (58%) of construction SMEs are struggling to hire bricklayers and 55% are struggling to hire carpenters and joiners
  • Two-thirds (66%) of construction SMEs expect salaries and wages to increase during the next six months, up from 62% in the previous quarter

Brian Berry, Chief Executive of the FMB, said “Workloads for builders continued to grow in the first quarter of 2018 despite the ‘Beast from the East’ wreaking havoc across the UK’s construction sites. However, once again, the growth we are seeing is slower than in the previous three months and this can be partly attributed to pressure from rising costs. Indeed, 90% of builders reported increasing material prices in the first three months of 2018 and this is the highest reading on record. Insulation, bricks and timber are the materials that have increased the most and builders are predicting that these price increases will continue. We are also seeing increased salaries for tradespeople stemming from the acute skills crisis and that, coupled with material price hikes, are squeezing margins and stifling growth for construction firms of all sizes.”

“In terms of house building, these latest results should sound some alarm bells with the workloads of SME house builders dropping off in the first quarter of this year. In 2017/18, 197,000 homes were started in England but this is some way off the Government’s target to build 300,000 homes per year. The FMB has worked closely with the Government to identify how to remove barriers to small local house builders, but these latest results act as a reminder that there is more to be done. The FMB would now like to see the continued and speedy implementation of some positive Government policies designed to bring forward more small sites, properly resource planning departments and increase the flow of finance to SME house builders. If we are to reach our ambitious house building targets, we cannot rely solely on the largest house builders.”

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SME builders and Unite the union agree 3.1% pay rise over the next year

The Building and Allied Trades Joint Industrial Council (BATJIC) has agreed a one year deal involving a 3.1% pay rise to come into effect in June 2018. This follows from the successful conclusion of pay negotiations between the Federation of Master Builders (FMB), on behalf of SME construction employers, and Unite the union, on behalf of operatives, the FMB has said.

  • BATJIC has agreed a one year deal involving a 3.1% pay rise over the next year
  • All apprentices and trainees will also benefit from a 3.1% pay increase
  • The adult general operatives’ rate increases by 29p per hour to £9.52
  • The NVQ3 advanced craft rate increases by 37p per hour to £12.45
  • The changes will come into effect as of Monday 25th June 2018

Brian Berry, Chief Executive of the FMB, said “I am pleased that we were able to reach this agreement. A 3.1% pay increase is a significant rise, but it is designed to take into account higher inflation last year and make sure that employees continue to see the benefits of ongoing growth in construction through rises in real wages. The severity of the skills crisis means that it is imperative that we attract more people into the industry. It’s also more important than ever that we retain existing workers. At the same time, the economic outlook for employers remains uncertain, especially given key unknowns like the impact of Brexit. As such, I believe the agreement announced today strikes a fair balance which is right for the industry.”

Jerry Swain, the National Officer for Construction at Unite the union, added “Unite welcomes this agreement which recognises the impact of inflation and includes a 3.1% pay rise over the next year. It is only right that workers see the benefits of growth in the construction sector with this significant pay rise which demonstrates the importance of a strong collective union voice for construction workers. We welcome the FMB’s ongoing commitment to BATJIC which continues to set the standard for wages and conditions within the construction SME sector and look forward to ensuring the sector continues to go from strength to strength.”

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Soaring material prices hampering small building firms

A third of small building firms say that soaring material prices are squeezing their margins and almost a quarter have had to pass these price increases onto consumers, according research by the Federation of Master Builders (FMB).

Construction SMEs have reported a range of material price increases since the depreciation of sterling following the EU referendum in June 2016. Small building firms were asked which materials have increased the most and the results were as follows:

  • Timber
  • Insulation
  • Bricks
  • Blocks
  • Windows
  • Plasterboard / Slate (joint sixth)
  • Boilers and radiators
  • Porcelain products

The impact of these material price increases includes:

  • 85% of builders think material price rises could drive consumers to hire rogue traders in an effort to save money on their building projects
  • One third of construction SMEs (32%) have had their margins squeezed
  • Almost one quarter (22%) have been forced to pass material price increases onto their clients, making projects more expensive for consumers
  • More than one-in-ten builders report making losses on their building projects due to material price increases

Brian Berry, Chief Executive of the FMB, said “Material price increases have left builders under severe pressure. This research shows that following the fall in the exchange rate, timber is the material that the majority of builders say has increased most in price but the problem doesn’t end there – everything from insulation to windows to bricks and blocks are soaring in price. A third of builders report that these price increases are eating into their already razor-thin margins – and this on top of increased wages and salaries stemming from long-term construction skills shortages. Furthermore, one-in-ten builders say that they’ve actually made losses on projects due to material price increases – this is most likely to happen when a particular product or material jumps up in price mid-project when then builder has already quoted for the work. Perhaps unwisely, some builders are absorbing these extra costs as opposed to re-quoting for the project.”

“Material price spikes aren’t just a problem for builders – they’re also a problem for the home owner, with almost one quarter of builders saying that they have had to pass on price increases to their clients. This means that building projects now cost significantly more than they did this time last year. What with stagnant wages and price inflation across the economy, consumers are feeling the pinch and it might be that they decide not to commission that loft conversion or extension after all. Or worse still, 85% of builders believe that home owners will be tempted to hire rogue traders who are quoting a lower price than a professional building firm such as those that belong to the FMB. If that’s the case, material price rises could lead to a flurry of botched jobs and distressed consumers. We’re calling on home owners to hold their nerve – they’re better off commissioning a more modest project from a professional builder than a high spec project from a cowboy. Don’t take the risk.”

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Two-thirds of construction bosses can’t find a bricky or chippy

Two-thirds of those running small and medium-sized (SME) construction firms are struggling to hire bricklayers and carpenters as construction skills shortages hit a ‘record high’, according to the Federation of Master Builders (FMB).

Key results from the FMB’s latest State of Trade Survey, which is the only quarterly assessment of the UK-wide SME construction sector, include:

  • More than two-thirds (68%) of construction SMEs are struggling to hire bricklayers and 63% are struggling to hire carpenters and joiners – the highest figures since records began in 2008;
  • The number of firms reporting difficulties hiring plumbers and electricians (48%), plasterers (46%) and floorers (30%) also reached record highs;
  • Construction SME workloads grew at a slightly slower rate than in Q3 2017, but new enquiries and expected workloads slowed more sharply; expected workloads among those firms building new homes showed a negative net balance for the first time since 2013;
  • Fewer construction SMEs predict rising workloads in the coming three months, down from 41% in the previous quarter to 38% in Q4 2017;
  • 87% of builders believe that material prices will rise in the next six months, up from 82% in the previous quarter;
  • Nearly two-thirds (61%) of construction SMEs expect salaries and wages to increase in the next six months.

Brian Berry, Chief Executive of the FMB, said “Skills shortages are sky rocketing and it begs the question, who will build the new homes and infrastructure projects the Government is crying out for. The Government has set itself an ambitious target to build 300,000 homes every year in England alone. More than two-thirds of construction SMEs are struggling to hire bricklayers which is one of the key trades in the building industry. This has increased by nearly 10% in just three months which points to a rapid worsening of an already dire situation. What’s more, nearly as many are facing difficulties hiring carpenters and joiners. These figures are the highest we’ve noted since records began a decade ago. As a result, the wages for these increasingly scarce skilled tradespeople continue to rise sharply; that’s a simple consequence of supply and demand. This, coupled with the fact that small construction firms continue to face significant material price increases, will inevitably squeeze their margins and put a brake on growth.”

“The Government must take account of the worsening construction skills shortage with Brexit looming large on the horizon. The Prime Minister must ensure that the immigration system that replaces the free movement of people can take account of the particular needs of key sectors such as construction and house building. Without skilled labour from the EU, the skills shortages we face would be considerably worse, and it is not in anyone’s best interest to pull the rug out from under the sector by introducing an inflexible and unresponsive immigration system. On the domestic front and in the longer term, to ensure we have an ample supply of skilled workers in the future, the Government must continue to work with industry to set the right framework in terms of T-Levels and apprenticeships.”

“The silver lining to current skills shortages among construction SMEs is that the numerous tradespeople and professionals, who may find themselves out of work following the collapse of Carillion, have a ready supply of alternative employers. The FMB is working with the Department for Work and Pensions and the Construction Industry Training Board to match-make ex-Carillion workers with small construction employers in need of skilled workers. We’re also working hard as an industry to re-home the 1,200 Carillion apprentices who are the innocent victims of the major contractor’s demise. It’s in everyone’s interests to ensure that these young people continue on their path to a rewarding career in construction.”

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Chancellor must improve access to finance for small builders

The Chancellor must take bold action in the forthcoming Budget to improve access to finance for SME builders if he wants to tackle the housing crisis, according to the Federation of Master Builders (FMB).

Brian Berry, Chief Executive of the FMB said “If the Government wants to solve the housing crisis, it must address the access to finance issue that local housebuilders continue to face. The Chancellor needs to commit to underwriting loans from banks to small house builders to get finance flowing into our sector once more. Nearly a decade after the financial crisis, difficulty in accessing finance remains a major barrier to small house builders increasing their delivery of new homes. Indeed, the FMB’s 2017 House Builders’ Survey showed little signs of improvement in this picture and if anything suggested slight deterioration in lending conditions. Assessments of lending conditions to SME developers were down slightly from 2016, the first fall in this measure since 2013. These difficulties make it much harder for existing SME house builders to flourish and grow and deter new firms from entering the market. This has resulted in a less dynamic house building sector that is less able to expand to build the homes we need.”

“If local housebuilders are to build Britain out of the housing crisis, the Chancellor must use the Budget to pull as many levers as possible in order to enable more finance to reach SMEs. One thing the Government can do is act to reduce the capital costs of lending to this sector for smaller specialist lenders. The initiative announced last week by the British Business Bank to extend its ENABLE Guarantee to house building by striking a deal with United Trust Bank is welcome. This type of Government action, because it pushes down the capital costs of lending to SME builders, will allow lenders to do much more of this. The Chancellor needs to back this initiative, encourage its expansion and explore all other options to reduce the risk and costs to banks of lending into this sector. If the Government wants to meet the ambitious housing targets it has set itself, it will need to ensure the long-constrained SME housing sector can once again access the finance it needs to meet the challenge of tackling Britain’s housing crisis.”

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Mayor’s focus on small construction sites can help solve London’s housing crisis

The London Housing Strategy’s strong focus on bringing forward more small sites will help solve the housing crisis by opening up the market to SME house builders, according to the Federation of Master Builders (FMB).

Commenting on the draft London Housing Strategy, Barry Mortimer, Director of FMB London, said “If we’re to build the number of new homes Londoners need, we must urgently make much better use of the many existing small sites that are dotted all over London. In doing so, we will the strengthen the capacity of SME house builders to build more new homes and perhaps even attract some new SME firms into the market. FMB research has consistently shown that a lack of available and viable land is the main factor stunting the ability of small builders to deliver more homes. Indeed, over half of SME house builders believe that the number of small site opportunities is, if anything, decreasing.

“We therefore welcome strongly the Strategy’s proposal for a presumption in favour of appropriate residential development on small sites, which goes further than proposed changes to national policy as laid out in the Government’s Housing White Paper. The ‘Small Sites, Small Builders’ programme will also link up public land owners with small builders, which could make accessing public land easier for small firms. We also welcome moves which will mean that less of the Community Infrastructure Levy is payable upfront on small sites. This will really help with cash flow for smaller builders and make the economics of small scale development slightly easier.

“The London Housing Strategy therefore marks a step forward in empowering smaller house builders in London. In order to reach the 50,000 new homes London needs to build each year, this renewed emphasis on small sites is vital. However, all such progress could be undermined if the Mayor fails to protect small sites from onerous levels of developer contributions. National planning guidance states that planning obligations should not be sought from developments of ten units or fewer, but implementation of this policy in London is patchy at best. Unless the Mayor, and London Boroughs, recognise the need to minimise burdens on the very smallest developments, SME builders will continue to struggle to enter the market.”

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Growth continues in UK for construction SMEs

The SME construction sector grew in the second quarter of 2017, albeit at a slower rate in most parts of the UK than the first three months of the year, according to the Federation of Master Builders (FMB).

Key results from the FMB’s State of Trade Survey for Q2 2017, which is the only quarterly assessment of the UK-wide SME construction sector, include:

  • Q2 2017 was the 17th consecutive quarter of positive growth which means that the construction SME sector has been growing for more than four years (ie since Q2 2013)
  • Almost one in two construction SMEs predict rising workloads in the coming three months, with just 9% predicting a decrease in activity
  • 83% of builders believe that material prices will rise in the next six months
  • 60% of construction SMEs are struggling to hire bricklayers; 57% are struggling to hire carpenters and joiners; and 47% are struggling to hire plumbers
  • Almost two-thirds (62%) of construction SMEs expect salaries and wages to increase in the next six months

Brian Berry, Chief Executive of the FMB said “Rising material prices and salaries could be starting to dampen growth among construction SMEs. However, it is encouraging to see that the sector has continued to grow despite the recent snap General Election and the resulting hung Parliament. The construction SME sector is particularly vulnerable to any dips in consumer confidence that might come from periods of political uncertainty. It may be that a number of home owners decided to delay any big spending decisions on new extensions or loft conversions while the election campaign was underway – this would account for the slow-down in growth seen in the second quarter of 2017.”

“Looking ahead, almost two-thirds of construction firms expect wages and salaries to increase over the next six months and this is in contrast to stagnant wages elsewhere in the economy. Rising salaries are undoubtedly the result of the escalating construction skills shortage – construction workers know their worth and are demanding higher wages from their employers. The majority of construction SMEs are struggling to recruit key tradespeople such as bricklayers and carpenters and we’re seeing shortages in other trades, such as plumbers and plasterers, starting to creep up. With Brexit on the horizon and worrying talk of the so-called ‘Tier 2’ immigration system replacing the free movement of people, the construction industry urges Ministers to bear in mind their strategic house building and infrastructure targets before pulling up the drawbridge on EU migrant workers.”

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Four month wait for good builders, research reveals

Home owners should book in their builder at least four months before their project begins or risk working with a cowboy, research from the Federation of Master Builders (FMB) has revealed.

The research also shows that an alarming number of consumers don’t ask their builders for essentials such as a contract or references when embarking upon a major piece of building work.

Key statistics from the research show:

  • More than 40% of builders need at least four months’ notice from consumers who want to hire their firm
  • 90% of builders say that the majority of home owners do not ask for a written contract
  • 80% of builders report that most consumers do not ask for an agreed payment schedule
  • Fewer than 10% of builders say that clients normally request to see vital insurance policies such as public liability or employer’s liability insurance

Brian Berry, Chief Executive of the FMB, said “If a builder is free to start work tomorrow, alarm bells should ring. Demand for building work is incredibly high at the moment and it should be no surprise that almost one in two builders need to be contacted at least four months in advance of when a client is looking to start a home improvement project. The workloads of builders have been rising steadily over the past two years and there’s no shortage of work. That’s why we’re urging home owners who are keen to crack on with their build or renovation projects to start getting in touch with prospective builders as soon as possible. Otherwise, they risk disappointment delaying their projects or worse still, working with a dodgy builder. So many building horror stories start with a client approaching a builder who’s free to start work sooner than the more professional builder who is really busy.

“There are also indications that home owners are leaving themselves vulnerable to problems in terms of how they approach their building work. The vast majority of builders say that most clients fail to ask for references and even fewer ask for a written contract on their work. There is a similar trend when it comes to asking for critical things like an agreed payment schedule and key warranties on work, as well as checking whether the builder has any external accreditation or recognition from professional trade association like the FMB. These protections really are essential to helping clients weed out the cowboys and mitigate against any issues that could crop up during the build. A quality builder will insist on these things and if they don’t, consumers ought to question why.”

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Welsh government and home builders sign pact to boost housing supply

Communities and Children Secretary Carl Sargeant today launched a pact with the Home Builders Federation and the Federation of Master Builders to help boost the supply of market housing in Wales.

The Cabinet Secretary sealed the agreement on a visit to Edenstone Homes, a housing developer building homes across South Wales and South West England, in Magor, along with representatives of both organisations.

The aim of the pact is to set out a number of commitments for all parties that would help deliver against housing targets. It builds on the House Builders’ Engagement Programme which was established by the Welsh Government and the Home Builders Federation in 2014. The Federation of Master Builders has been invited to join the partnership to represent those building on a smaller scale.

Launching the pact, Carl Sargeant said “While recent figures published show that the numbers of new homes started and completed in Wales last year were at their second highest level since the start of the recession in 2007-8, there is still an acute need for more homes across Wales. As the Cabinet Secretary with responsibility for Housing, I have made clear, my commitment to increasing housing supply.

“This pact, developed in partnership with the Home Builders Federation, the Federation of Master Builders and their members, will help deliver on our commitment to increase housing supply. It signals a positive step forward, and reflects our strong relationship with the house builders, which is vitally important to ensure the successful delivery of market and affordable housing across Wales.

“I look forward to continue working them to ensure the people of Wales are provided with the homes they need.”

Stewart Basely, executive chairman of HBF said “The Pact provides a framework for housebuildersto work with the Welsh Government to develop policies that will allow desperately needed homes to be delivered. Together we need to create an environment that allows the industry to invest in the land, people and supply chains required to increase output to meet the acute demand for housing.”

Ifan Glyn, Director FMB Cymru said “Although in-roads have been made of late, a lot of work needs to be done if we are to build the numbers of homes required to meet demand. This pact brings together the main players that need to work closely if we are to achieve this objective.

“Federation of Master Builders members are all small local firms, once the main drivers of house building here in Wales. Over a number of decades they have increasingly become mere marginal players in the market which has hampered the capacity of the industry to deliver the homes we need. We hope this pact acts as a catalyst to reverse this trend. We look forward to working in a progressive, innovative, and positive way with ourpartners to make this happen.”

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