With 28% of its workforce and 64% of its imported building materials coming from EU member states, what does Brexit mean for the construction industry? With clear signs of the construction trade slowing down in the wake of Brexit uncertainty, the REalyst looks at its longer-term effects on the industry expected to build 3-million new homes by 2040.
Read Time: 5 minutes
The day is almost upon us and yet uncertainty around Brexit continues to shake the confidence and stability of many business sectors throughout the UK. The property market has not escaped its effect, with even the veritable PurpleBricks taking a Brexit blow and the London housing market stalling.
Developers and construction companies alike are experiencing the repercussions of the uncertainty around deal with the EU. According to the most recent Market/Cips UK Construction Purchasing Managers’ Index, the building trade has suffered a significant slowdown in activity. Much like the UK property market, this stagnation in the industry is attributed to a delay in spending decision, with companies being unwilling to commit to a project due to economic concerns.
With cries to address the social housing crisis by building 3-million houses by 2040 date, it isn’t just the Bank of England and the Treasury looking to the economics of the construction industry as an early warning gauge. With all heads turning to the construction industry, could its health of previous years be starting to crumble?
The construction industry depends heavily upon migrant labour from the EU, both for skilled and unskilled work. With one third of workers on construction sites in London from overseas, with 28% of that total workforce comprising citizens of EU member states.
Access to this variety of skills and talent does not bode well for the construction industry, with Theresa May previously asserting that the free movement of workers between the UK and EU would end “once and for all”.
In a post-Brexit environment, demand will likely outstrip supply in construction labour. With EU workers choosing to migrate to countries that are easier to access such as Germany, this shortage of labour will likely result in British workers insisting on higher wages. Therefore causing the cost of housing projects to increase, too.
Should this materialise, limiting immigration will have a knock-on effect to the construction industry’s ability to achieve the government’s recommendations to address the housing shortage in the UK.
Freedom of movement of goods within the EU after Brexit is as problematic as the freedom of movement of its people. In anticipation of additional duties, limits on quantities or delays in obtaining building materials, construction companies are stockpiling. So, while commitment to projects is slowing down, purchasing raw materials is given high priority.
A staggering two-thirds of imported British building materials originate from EU member states. As the pound to euro exchange rate continues to struggle with each stalling of the Brexit negotiation, costs of these imports are already on the rise. Political uncertainty and the potential of leaving the EU without a deal risks losing tariff-free access to the single market. Without such access would see a further rise in construction costs.
On the flip side, the UK exports 63% of its building materials to the EU. Were the government to issue a UK public procurement policy stipulating the use of British companies and products only, this could mitigate some of the problems the construction industry faces in the wake of Brexit and enable some cost savings on any imposition of tariffs and duties.
The government recently published statutory instruments regarding environmental assessments and planning regime. Designed to ensure a continuity in policies going into a post-Brexit era, the instruments stipulate that developers and construction companies take into account appropriate considerations before and for the duration of the building process.
An Environmental Impact Assessment will be required prior to development consent, ensuring that the correct environmental considerations are factored into the planning process. Additionally, a Strategic Environmental Assessment is to be considered, informing the developer’s plans. The Hazardous Substance Regulations must be adhered to throughout the planning and building process.
With the government assuring the industry that the statutory instruments will “continue to uphold international obligations through multilateral environmental agreements”, changes to the planning process will be minimal. They will perhaps even improve the legislation by revising some references and removing EU-centric policies that have become obsolete to the UK construction industry.
Meanwhile, the government has reported that 3-million new homes need to be built between now and 2040 to meet housing demands in the UK. That means that a total of 150,000 houses would need to be built each year to meet this demand.
So, with the construction industry already showing signs of slowing down in the run up to Brexit, the added complication of skills shortage and higher project costs looks likely to aggravate the housing crisis, rather than proactively accelerate to achieve the government’s plans.
With the Brexit outcome still unclear, there is a glimmer of hope in the housing crisis agenda: with greater legislative flexibility, the planning process is set to become shorter to meeting housing demands.
Watch this space.
© Treex 2020