How is the UK Construction Industry Faring

Against a backdrop of considerable economic uncertainty, 2023 is posing significant challenges for many industries. The housing market has been volatile in the wake of multiple interest rate rises, this instability leading to uncertain times for buyers and sellers alike. The pressure and shortage of available rental housing is an issue which the UK government is trying to address by providing more investment into the housing market.

Much like other industries,construction is not immune to the cost-of-living crisis and its knock-on effects. In July 2023, Barratt Developments, the UK's largest housebuilder, announced that the company is expecting to build 20% less homes this year as a result of the economic downturn. Barratt Developments is not alone either; the housebuilder Bellway also confirmed a 25% drop in reservations in the four months prior to June 2023.

Although the UK is crying out for properties to bridge the gap between dwindling supply and increasing demand, there are obstacles which cannot be overcome overnight.

Skills Shortage

The construction industry is grappling with a notable shortfall in the numbers of available skilled workers. The situation has worsened over the years as a result of various issues; beginning with Brexit, which drastically reduced the ability of EU workers to move freely within the European Union. This issue was compounded by the Covid-19 pandemic and forecasts estimate that between 2023 and 2027, a further 225,000 additional workers will be required.

As the shortage appears to be due to multiple factors, finding an appropriate solution is far from straight-forward. If governments can introduce legislation to enable more movement from overseas, this may make a difference, but it will not solve the problem in its entirety.

Difficulties in Sourcing Materials

The rate of new build construction has slowed due to a shortage of materials. Supply chain issues began with the crisis of the Suez canal blockage in 2021, and these difficulties persist as other political circumstances continue to derail the construction industry. The war in Ukraine and worldwide sanctions against Russia have posed considerable challenges.

The availability of materials such as steel and timber has reduced and therefore the cost of them has increased. While some construction companies may be able to shoulder this burden, for others it may led to severe financial obstacles.

Energy Price Rises and Inflation

Whilst some household and individuals have been given extra support from the UK government to mitigate the effects of energy price rises, businesses have not had the same assistance. Although the impact of energy price rises is not unique to the construction industry, those in the supply chain have had to pass on price increases to those further along the line.

As the energy consumption required to manufacture certain products is higher than others, construction businesses are struggling to manage these costs. Passing these price hikes further along the line can lead to projects stalling and even facing cancellation. Construction companies therefore have less projects, leading to difficulties in staying afloat, a situation worsened by record levels of inflation.

Looking Ahead to the Future

Despite these notable challenges, there is some positivity in the outlook for the industry. Recognising the difficulties faced by the construction industry, the government has seen fit to add five construction industries to the Shortage Occupation List. The List seeks to alleviate pressure by offering migrant workers specific dispensation in moving to the UK to fill these shortages.It is hoped that this can attract more skilled workers to the UK and bolster the industry.

While residential construction may continue to lag behind pre-pandemic levels for some time to come, the government has been putting measures in place to stimulate the industry and address the shortage of available homes in good condition. It is hoped that the Levelling-up agenda and housebuilding target will boost growth in the industry and afford construction companies much-needed projects, while providing families and individuals with affordable, inexpensive housing.

It is clear that economic uncertainty will continue to have a notable impact on the construction industry for some time to come and companies will have to absorb some pressure while the UK navigates the cost-of-living crisis. It is crucial that the government continues to support the industry, both for the benefit of UK residents and the longevity of the profession.

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