Social house building programme could stave off economic downturn

Construction sector survey outlines No Deal fears with social house building pitched as a priority for the new PM.

housebuilding

A national programme of social house building could help stave off the economic downturn brought about by a No Deal Brexit, a survey says.

The Federation of Master Builders surveyed construction SMEs on the top five interventions the new PM could make should the UK crash out of the EU.

A quarter of respondents opted for embarking on a national programme of social house building.

Other options included:

  • Reduce VAT on repair, maintenance and improvement from 20% to 5%
  • Make more money available through Government funding schemes aimed at SME house builders, such as the Home Building Fund
  • Reform the Apprenticeship Levy so more SMEs can train apprentices
  • Invest funds in council planning departments to speed up the planning process (30%)

“The next PM has it in his gift to guard against any potential economic downturn by stimulating activity in construction and house building as soon as he gets the keys to No.10 – there’s no better way to do that than investing in construction and house building, which would boost economy,” said FMB chief executive Brian Berry.

But the survey findings showed the sector feared soaring material prices and lower workloads with No Deal.

Outlining those fears the survey showed:

  • Over half (53%) of respondents saying it would result in higher material prices
  • Just under a third (29%) saying it will lead to lower workloads and enquiries
  • Just over a quarter (26%) saying it would result in less access to skilled workers

Berry said material prices are the biggest cause for concern – widely-used building materials such as timber are largely imported and any disruption to that would lead to soaring prices and delays to construction projects.

“More broadly, a significant proportion of construction SMEs think that No Deal would result in lower workloads and enquiries as confidence in the economy might wobble as people abandon plans for new projects until the UK is on a steadier footing,” he said.

Essentially, for the fourth month out of five, the construction sector is in contraction -plummeting more than five points to 43.1 from last month.

Costain is the latest industry big-hitter to issue a profit warning – sparked by cancellations to contracts and delays to the HS2 rail and motorway projects.

Latest figures show the construction PMI plunging to 43.1 in June 2019 from 48.6 in the previous month and well below market expectations of 49.3.

This represents the steepest contraction in the construction sector since April 2009.

House building dropped the most in three years amid weaker demand conditions and concerns about the outlook for residential sales.

Total new work received by UK construction companies decreased the most for just over 10 years, while demand for construction products and materials fell at the sharpest pace since January 2010.

Essentially, for the fourth month out of five, the construction sector is in contraction – falling more than five points to 43.1 from last month.

Brendan Sharkey, Head of Construction and Real Estate at MHA MacIntyre Hudson, said the sector was weathering the Brexit uncertainty well but needed the promise of more government contracts to calm nerves.

“The country is a no-man’s land of uncertainty, and the Tory leadership race is making matters worse not better.

“For most construction businesses the market is holding up, perhaps surprisingly so, but there is a rising feeling of nervousness – the large firms are beginning to ask where the next contract will come from,” he said.

Phil Harris, Director at BLP Insurance, warned of rising business failures in the sector over 2018 as 202 companies slipped into insolvency, compared with 152 in 2016.

“With Hunt and Johnson taking an increasingly harder line on a no-deal Brexit scenario, SME builders across the country will be hoping they will not become sacrificial lambs in one man’s political power game,” said Harris.

“The winning candidate must go beyond merely espousing Brexit bluster, and help reinvigorate a stuttering economy.

“After recovering from the economic crash of a decade ago and suffering through three years of Brexit related stagnation, the construction industry needs some positive momentum, decisive action from Whitehall and above all else a degree of certainty,” Harris said.

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