100 Days of Labour: Effects on the Construction Industry

Our Head of Business and Client Analytics, Ed Griffiths, held an exclusive webinar for Barbour ABI clients to discuss the effects of the first 100 days of Labour on the construction industry.

The webinar started by addressing directly the volume of change, or lack thereof, that the UK has experienced. The pursuit of an industrial strategy is quite apparent thus far to drive growth and generate jobs, recognising the strong correlation between growth in GDP and the proportion the UK population that are working.

Ed also addressed key highlights that covered the current climate of the construction industry.

Current Climate of the Construction Industry

Building Safety Act

Currently there are issues concerning inconsistencies, rules and regulations that are unclear as well as delays due to capacity of those in charge.

General Election and Labour

Ed commented that people have adopted the ‘wait and see’ strategy as these 100 days of Labour Government appear quite rocky, which has created uncertainty in the construction sector. The first 100 days of Labour effects on the construction industry have been a topic of intense scrutiny, especially given the challenges the industry already faces.

Material Inflation

The cost of goods that are used to build projects has inflated at a substantial +52% when comparing 2015 figures.

Interest Rates

The UK has seen interest rates come down, with a possibility that more cuts will come.

Immigration

Labour and Conservatives have advocated for the focus on upskilling those in the UK first before migrant workers. This focus has its implications on the industry as historically we’ve relied substantially on migrant workers, thus the decrease of migrant workers could have a negative outlook on the overall workforce.

Insolvencies and ISG

Ed previously hosted a live briefing on the ISG administration and the impact of the collapse. People can receive updated bulletins as we compile more analysis and data about the projects ISG was assigned,

In the last 12 months there have been 4,373 businesses that have gone out of business or insolvent; a 40% increase when compared to 2015 figures.

Skill Shortages

385,000 skilled workers have left the construction industry since 2019. In a very similar vein to the immigration point above, how can the UK’s construction industry continue at these rates if the issues are not addressed?

October Budget

The budget will be assessed in October of this year. Ed stated that it is being described as a £22bn black hole.

Help to Buy Scheme

Ed suggested that for housebuilding to increase, there needs to be incentive for the average consumer to be able to buy houses. The Help to Buy scheme for residential buyers ended in 2023, will we see a resurgence to stimulate growth in this sector?

Construction Outlook

At the time of the webinar, this construction outlook was crafted pre-budget and pre-Labour. Barbour ABI will be reissuing our forecast once the budget is released.

Reserved growth follows a period of “catch up” post covid however more recent performance is hindered by struggling consumer confidence which impacts retail, entertainment and leisure

Continued insolvencies and the more recent ISG administration paint a difficult picture and puts future forecasts in a poor light. A period of greater economic stability, investment and policy changes for the better could see this forecast improve.

Ongoing challenges in the supply chain on both a macro and micro level suggest that industry sentiment may not improve further for some time.

There is a consistent uptick in RMI as we would expect while New Work is anticipated to dip before a period of growth.

Construction Outlook – Sectors

The Residential sector forecast reflects both abilities to buy rather than need / targets set, with historic output reflecting increased costs of raw materials and energy prices.

Infrastructure forecast does not reflect the full extent of the need for urgent works as we move toward net zero, clean energy and transport improvement. We expect the budget in October to set a clearer picture for intentions from the Government (e.g. £22Bn Carbon Capture projects announced Friday 4th October).

The Education sector is anticipated to grow in the coming years with requirements on Reinforced Autoclaved Aerated Concrete repairs and the School Rebuild Programme.

Medical and Healthcare has seen rapid growth following the pandemic with the “New Hospital Programme” likely driving; this could be conservative following the Labour Governments appointment and their pledge to invest in the underfunded NHS. Budget will be key in informing any revisions.

Despite the lingering “work from home” impact post Covid, the construction of office spaces has picked up well post covid and is forecast to continue to grow.

Retail has endured the ongoing ‘death of the high street’ while other aspects such as food retailing is seeing ongoing growth.

Quarterly New Home Output and Targets

The new Government has set a target of 1.5 million new homes in 5 years, an even more ambitious target than the previous Government’s plans. This target looks unlikely in the face of historic data, unless there’s significant intervention from the Government.

The chart above is the ONS dwelling completion data by quarter. Typically, we were completing between 40,000-50,000 new homes each quarter during the last seven-eight years.

The 1.5 million new homes is an extremely difficult target for several reasons affecting both builder and buyer such as but not limited to:

• A complex planning system
• Diminished tradespeople
• Supply chain & raw material costs
• Interest rates

Looking to the chart, the black line on the right-hand side indicates the average level we would have to operate to achieve the 1.5 million new homes in the next 5 years. For context, that black line is nearly double of what the UK has seen historically in each preceding month.

The blue line represents the scenario of the ramp up of delivering 1 million new homes and is based on a 10% increase after the first year. The green line scenario increases 10% in the first year, and increases by an additional 10% each year thereafter, meaning by the fifth year the increase will be at 50%. This scenario only gets us to 1.3 million new homes. As both scenarios don’t reach the 1.5 million new homes target it’s easy to understand the extreme difficulty in obtaining this goal.

Commercial Housebuilding Bottle Neck

Barbour ABI data signals another issue to be dealt with: the number of applications that are being submitted to build homes are a on a long-term decline with a particular focus on commercial.

The decline goes further than just application numbers. We’re seeing that the amount of homes being applied for is also in decline, another key indicator that the UK is facing a housing crisis.

The chart below is showing the average number of days from application to detail decision.

Ed described the lines on the chart as quite volatile but on an upward trajectory rising from around 210 in January 2020 to almost 280 in the most recent period.

Overall, the time between application and detail decision has been steadily increasing, taking 42 days longer on average in 2024 relative to 2020.

This chart further indicates to the industry that it’s unlikely that we will be able to see the uptick in houses being constructed.

Residential Greenbelt Rejections: The last 10 years 

Greenbelt locations have seen a steady rate of applications over the last 10 years; however they see an estimated 30% rejection. This leads to the question of developing on greybelt land, but we face the lack of a clear definition of greybelt and what to do if the greybelt area is surrounded by protected greenbelt.

The Government has previously described greybelt as ‘poor quality and ugly areas’ within greenbelt land. This is clearly a subjective description that makes it difficult to assign areas as greybelt in any consistent way.

The average number of Greenbelt applications over the last ten years averaged to about 324 per year. If application levels do not increase we could expect to see about 50 approvals to greybelt sites in the next 5 years.

‘New Towns’ Planned to Help Deliver 1.5 Million New Homes

New Towns are a possible solution to the housing crisis that Labour has been socialising and pursuing for some time.

However, this strategy could be perceived as a hard sell as 40-50% of all housing built on new town sites must be affordable, an aspect that might not attract housebuilders from an economic standpoint.

Milton Keynes is a perfect success story for the fight for new towns. Identified in 1967, it’s grown to have a population of around 250k residents. Milton Keynes, however, is considered a massive outlier compared to other new towns. As Labour undeniably looks to emulate the success of Milton Keynes, and pitching it towards the 1.5 million new homes, Ed states that it could be slightly naïve and will take a much longer period of time due to the current climate.

Nod to Infrastructure

Infrastructure new work output has more than doubled over the past decade. Growth hit record levels in 2018, dipped slightly during the pandemic, and rocketed after the 2020 publication of the National Infrastructure Strategy.

The National Infrastructure Strategy set out significant ambition across transport, energy, schools, and health. Within this HS2 was the ‘Government’s flagship national transport project’.

Ed stated that the reason we are positive about the outlook for infrastructure under the new Labour Government is three-fold.

1. The new Labour Government proposes creating a new National Infrastructure and Service Transformation Authority aiming to create a new ten-year infrastructure strategy.
2. Labour have allocated £8.3 billion to their proposed Great British Energy company and have committed to delivering zero-carbon electricity by 2030 focusing on onshore and offshore wind along with solar.
3. A proposal for Great British Rail (GBR) will bring railways into public ownership and work with the devolved authorities to design local rail services along local bus services.

Labour, Net Zero, and the Next Two Parliaments

Given the nature of Labour’s recent win it is reasonable to expect them in power for two terms and subsequently responsible for achieving Net Zero by 2030.

Edward Miliband, Secretary of State for Energy Security and Net Zero, has stated that the British industry is held back by high electricity costs which has made investing in the UK unattractive and Labour’s plans to hit clean energy milestone will amend this problem.

Key areas where Labour have excelled in effort to achieve Net Zero:

• Approved solar farms in Suffolk, Lincolnshire and Rutland to supply about 400k homes, reversing many of the conservative blocks that were previously put in place
• Unleashing a ‘rooftop revolution’ by amending planning regulations to allow installation of solar panels
• Established Great British Energy, a publicly owned company aimed to growing renewable energy in Great Britain
• Increased Contract for Difference investment projects to support new clean energy projects

Heat Pumps – A growing trend in specifications 

Looking at the volume of heat pumps that are being specified in projects over a substantial amount of time as shown in the graph is on an upward trend.

However, as the Labour Government confirmed that they won’t keep the 2035 ban on new gas boilers, there raises a cause for concern in achieving renewable energy targets. Lifting the ban could also mean affordable energy solutions in new homes across the UK as heat pumps are ultimately very expensive compared to boilers. This presents an interesting double-edged sword for the UK Government.

Referring to the overall growth in specifications however, the National Audit Office indicates that this rate is still far too slow. The rate as it is now would need to increase by 11 fold in order to try and achieve volumes that were targeted years ago. Currently the UK only has about 3,000 qualified installers for heat pumps. To achieve targets, we would need to substantially increase the number of installers to about 37,000.

In Summary

• • The upcoming Budget is expected to have significant impacts on both the nation and the construction industry. Key sectors like infrastructure and housing are anticipated to receive the most positive outlooks, although healthcare also stands out as a critical area for potential investment.

• • The government’s target of building 1.5 million homes over the next five years appears increasingly unrealistic, given historical housebuilder performance. Compounding this is the nationwide decline in housing application approvals over the past decade, a trend that will likely take time to reverse.

• • While much attention is being given to greybelt and greenbelt land debates, their potential to substantially boost housebuilding appears limited. More promising, though still historically limited, is the concept of “New Labour Towns” as a way to address housing shortages.

• • Infrastructure development, which had been restrained under the Conservative government, is expected to see renewed attention, especially with current governmental discussions hinting at greater investment.

• • Net Zero remains a central focus, with the government playing a critical role in guiding the country toward the 2030 target. While the renewable energy sector boasts a substantial project pipeline, concerns persist about so-called “zombie projects” that may be obstructing real progress. To support the expansion of renewables domestically, increased governmental backing will be necessary to offset the relatively high costs.

Overall, the Budget has the potential to reshape these sectors and set the course for the nation’s future growth and sustainability.