Shortages of materials and labour push up prices and lead to delays and rising wages
At the beginning of the year, Ian Hodgkinson’s main aim was to keep his business alive. But in the last four months he has gone from ticking over to overwhelmed. His bricklaying firm has been inundated with demands as Britain’s building industry has begun to boom, boosted by the government’s Help to Buy scheme for first-time house buyers.
The scheme, announced in April, has started a chain reaction that has seen the construction industry facing labour and materials shortages that have pushed up prices and lengthened supply delays. Bricklayers can now earn more than £40,000 a year and brick deliveries that were being fulfilled in two days can now take 10 weeks.
Hodgkinson, a director of a Derby-based brickwork contractor, said: “It’s gone phenomenal. At the beginning of the year we were scratching around. Now people call and just ask: ‘Can you deliver the bricklayers?’ Prices are no longer important. For years we have barely survived, we have been paid late, underpaid and not paid at all by contractors. They will now be paying through the nose or getting nothing. I could double my business if I could get the finance.”
The property industry is one of the few booming parts of the economy. A report last week from the Royal Institution of Chartered Surveyors said that house prices were rising at their fastest pace for seven years. The number of estate agents is the highest since records began in 1978 – 562,000 people are employed in real estate in the UK, according to the Office for National Statistics, with 77,000 joining the industry over the last year – figures which stoke fears that the country is heading for a house-price bubble.
New orders in the construction sector rose by nearly 20% in the April-June period compared with the previous three months, to show their biggest rise in four years. Annual growth of 32.8% in construction orders was the biggest since 2005.
However, further growth is being held back by a severe shortage of construction workers. Maria Commane, managing director of Sitemasters, a London-based construction recruitment company, said she had never seen demand for labour outstrip supply in her 26 years in the business.
“There are shortages in all areas, from labouring to skilled work. Pay rates are going up across the board. Bricklayers are looking for £19 an hour, which is up from around £15. Workers are negotiating rates upwards all the time,” she said.
The main reason for the lack of supply of construction workers is the absence of workers from the European Union, many of whom have returned home or found work in other industries since 2008, and a historic shortage of skilled British workers.
John Kelsey, a lecturer in construction economics at University College London, said: “The problem for the last decade has been that we depend on importing labour to make up shortages here and we no longer have an efficient system for training apprentices.”
Builders may have been having difficulties getting their work done, but house prices are already taking off. Between April and June, British house prices rose by 6.8 % while, according to some reports, prices in London rose by 10%. According to the Home Builders Federation, there was a 49% year-on-year increase in the number of planning approvals for new homes between April and June this year. In the first six months of the year, 77,686 permissions were granted, a 26% year-on-year increase. The federation estimated that Britain needs 220,000 homes to be built each year to meet demand.
The rise in the value of property triggered by government-supported easy credit to first-time buyers has begun to ring alarm bells. Adair Turner, the former chairman of the Financial Services Authority, told BBC2’s Newsnight last week that the government could be overdoing stimulus to the housing market, which may cause future problems. “We have had a whacking great hangover after a debt-fuelled housing boom. Our policy seems to focus on a bit of the hair of the dog that bit us,” he said.
The building supply industry has also been taken by surprise. David Weeks of Hanson, Britain’s biggest brick manufacturer, said his company had invested £500,000 in reviving a brick plant in Claughton, Lancashire, and was recruiting 34 workers for it. “The upturn took us by surprise. We were expecting an improvement towards the end of the year. We then had to be confident that it wasn’t just a spike and then we could respond. We have to match capacity to demand. We are meeting demand, but it is now taking eight to 10 weeks to supply orders, as opposed to 48 hours at the beginning of the year,” he said.
Ibstock, another brick manufacturer, opened a modernised brickworks in Chesterton, Newscastle-under-Lyme, this month and revived a plant in Ibstock, Leicestershire, to meet demand.
The transformation in the construction industry this year has been dramatic, but it will take some time before pe-2008 levels of activity are achieved. Hodgkinson said he was now employing 50 bricklayers compared with 20 in January – but in 2008 he employed 260.
Weeks said that in 2008 Hanson produced 1.5bn bricks, but last year it made 800 million. “It’s still a bit early to be talking about a recovery,” he said.
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