The past month has been one of the hardest times for construction firms in recent memory. Tom Scotney looks at pressures hitting the industry.
The headlines will have made grim reading for anyone involved in construction in recent weeks.
At the start of the month, the group behind the development of Arena Central – which includes the V Building, one of the most recognisable points of Birmingham’s proposed new skyline – went to Birmingham City Council to ask permission to make a £5 million planning-gain payment for improved public transport in phases rather than up-front in a lump sum.
Arena Central Developments said cash-flow difficulties meant they did not want to hand over all of the money as soon as work on the £500 million development begins. The council planning committee agreed.
And the delay was just the latest of many high profile problems to hit the construction industry, coming just days after the collapse of Chase Norton Construction.
In what was a major blow to the economic confidence of the whole region, what was once a £40 million business working on some of Birmingham’s most high-profile projects had to call in the administrators because of a crippling cash shortage. The company that had managed the £15 million mixed-use development to the south of the Mailbox simply did not have the money to complete the contracts it had signed.
Chairman Rod Ackrill, the president of Birmingham Chamber of Commerce, had to defy doctors’ orders and go into the office to deal with the collapsing finances of the stricken firm. More than 100 workers were axed from the company’s head office in Warwickshire, with just a skeleton staff kept on to assess the future of its now moribund outstanding contracts. And customers scrabbled to find new companies to take on work as diverse as a school in Worcestershire and a church in Handsworth.
The collapse of long-established parts of the Chase group sent shockwaves through a business community already reeling from regular tales of woe from the “credit crunch”.
And Chase was far from the only construction company to be affected. Taylor Wimpey, the UK’s biggest housebuilder, axed 900 British jobs at the end of last week, with speculation that many would be lost from regional centres in Leicester and Wolverhampton. Barratt Developments cut 50 jobs in its Halesowen branch. Persimmon said 280 jobs would be going.
There were estimates that the construction industry lost 5,000 jobs across the UK in just one week at the start of the month.
So what went wrong?
Despite the need for new housing – shown by the Government’s desperate attempts to build the much-mooted “eco-towns”, the number of houses being built continues to drop. The construction industry in the UK took a knock between May and June and took a big knock after house-building reached its lowest point since the Purchasing Managers’ Index started recording figures in 1997.
The latest RICS survey showed housebuilding in the West Midlands declined at their fastest pace in almost 13 years as the effects of the credit crunch deepen within the UK economy.
In the West Midlands workloads in this sector fell at the fastest pace in the survey history as house builders, reacting to the market downturn and the credit crunch, have had no option but to severely limit output, putting the Government target of building three million new homes by 2020 even further out of reach.
Howard Archer, an economist at the Global Insight consultancy, blames the collapse in construction activity on the housing market, saying: “House-builders are being hit extremely hard as housing market activity and house prices crumble in the face of elevated affordability pressures and very tight lending conditions.
“With the housing market set to deteriorate further, the commercial property sector in dire straits and Government finance for infrastructure projects limited, the construction sector looks to be in for an extended, very difficult time.”
Construction has been leading the way in the downward spiral of the credit crunch, as the deflating housing market hits the companies that used to prosper from the constant demand for new homes.
But Pat Tissington, a lecturer in organisational psychology at Aston Business School, says it’s not time to panic yet, with the underlying social trends that have fed the growth in housing still there.
“From my perspective I’m not sure if these troubles will last,” he said. “I think a lot of the activity in the construction industry has been driven by this large shortfall in housing we have had, and the underlying social reasons why we need houses are still there. What I have seen talking to a couple of builders is they find people have got cold feet on new properties that were about to come on stream.
“Developers work on such tight margins that they need to sell their projects as soon as possible after they are finished, so they are feeling the brunt of the lack of confidence in the housing market, but the underlying economy in terms of employment is strong enough. This crisis, if it is a crisis, is just feeding through now.”
Mr Tissington said despite the tales of woe the fortunes of many construction companies were still in good shape, especially when they chose to work on commercial projects.
And, he added, many large civil projects were crying out for developers to fulfil contracts, saying: “The civil and big properties are coming along very well, the most obvious example being the Olympic Authority, which is still short of people to complete its projects down in London. Dandara, who will be doing the building work for the V Building agreed.
Development director Steve Evans said the company had not seen any ill effects from the credit crunch on its high-profile projects across the UK, saying work on the V Building was continuing as normal from the company’s point of view.
And many people agreed one of the biggest problems facing the construction industry is the lack of skilled workers – sometimes forcing developers to turn down money-spinning contracts even in such a difficult economic climate. Mr Tissington said: “There is definitely still a huge skills shortage in the construction industry.
“It can be a matter of large firms saying they simply can’t fulfil contracts, or taking them on but finding they are struggling.”
Although the skills shortage has started to ease in the last monthly figures taken in the West Midlands, he added it would still be a struggle for industries to find the skilled labour they needed if they were to ride out the financial tough times.
He said: “The skills issue is something that’s been quite a serious problem for quite a while now. The advice is the same as it has always been – get a trade. There’s only one short-term solution – more qualified foreigners to work in the construction industry.”