Construction Skills Shortage Holds Back Housing
House builders are operating under the combined pressure of rising costs and real shortages in the labour market; a double whammy which is holding back growth.
The reality of the situation is that we just don’t have enough skilled workers to build the homes we need. In the words of Peter Box, the Local Government Association’s housing spokesman, Britain has trained “too many hairdressers and not enough Bricklayers”.
This is supported by Lloyds Banking Group’s recent study that found 35% of construction companies were struggling to find candidates to fill skilled job vacancies such as Electricians, Quantity Surveyors and Site Managers. In addition to this, the Federation of Master Builders found that two thirds of builders have turned down work due to the skills shortage.
We hear the same message every day when we speak to our clients. The combination of industry growth and a skills shortage in the sector has resulted in there being more work than there are tradespeople.
So what are the effects on housebuilders and property developers?
Publicly listed house developers, such as Barratt and Bellway, will be feeling the heat when it comes to expanding fast enough to take advantage of industry growth. In a recent trading update, Bovis Homes stated that “subcontract labour availability remains the key constraint on delivering increased production”
Given the lack of manpower available to them these companies are struggling to meet the demands of shareholders and analysts are only too aware that it is a universal problem that no one company can deal with.
Smaller developers are coping with cost inflation. Tradespeople are becoming more expensive with demand exceeding supply in the labour market. This rise in labour costs in the face of drastically increased demand for houses results in the perfect storm. In a race to the bottom of who can pay the most to subcontractors, smaller developers will find that they can’t compete with the larger companies and take on more work. We may begin to see larger companies squeezing smaller ones out of the market.
Weathering this storm will not be easy. Gone are the days of “subbie bashing” to maximise profit margins by squeezing the supply chain, margins will shrink and smaller developers will find themselves struggling.
So what is the solution? In the short term shoring up profitable and long standing relationships with subcontractors by providing favourable conditions may help to weather this storm.
In the long term this problem will only grow, with industry statistics showing that over 400,000 construction workers will reach retirement age in the next five to ten years. Tackling this will require small and large companies across the entire sector to come together with the government to ensure that the next generation of skilled construction personnel is being trained.
The current industry growth may have given some in the industry the impression that the worst of the recession’s storm has passed. However, it’s far more likely that we are merely in the eye of the storm, with the skills shortage resulting in more bad weather to prepare for.