Shortfall

In this week's blog, the first in a series, we take a break from the financial market commentary to examine some of the problems and challenges our developer client base faces in the current market. We aim to highlight specific issues and predict where the solutions may be found. For our inaugural offering, we are focusing on what may be a critical challenge for the industry: one raised at the recent Liberal Democrat conference by Baroness Dorothy Thornhill, who stated that the UK could not reach its proposed housing targets due to the sheer scale of the construction workforce crisis.

All housing developments, from significant to bespoke, are ultimately reliant on skilled tradespeople and construction workers, either by enterprises with a pyramid of contractors and sub-contractors beneath them or more sizeable entities having a construction arm; whatever the setup, it all depends on a flow of talent into the industry. Looking at the number of people employed in the construction industry, there were 2.4 million heading into the pandemic; as of today, 300,000 of those people have left, and the trend has been down since Q1 of 2019.

We are looking at this explicitly concerning housing, but ultimately, these issues affect all aspects of the country's construction requirements. Rolling back to May of this year, the Public Accounts Committee stated that the UK does not have the workforce capacity to deliver its planned significant infrastructure projects, so these aren't issues that should be ignored. The positive for our industry is that homebuilders will benefit from any urgent solutions proposed.

Another positive is that construction output by starts and volume is increasing in contrast to the worker shortfalls, which rose 2% in 2023 and is predicted to continue growing at that pace. A research piece from the Construction Industry Training Board has stated that this expected growth, however, hangs on the UK acquiring an additional 251,500 construction workers over the next five years. As the Department of Education revealed, this shortfall is primarily due to a growing deficit of new starters in the industry and a 6% year-on-year drop in apprenticeship starts.

Now, speak to anyone in the industry, and these problems are widely known and widely discussed; there is no edge here; people are aware of the issues, but looking at and interpreting the construction output data, including UK housing starts from 2024, the numbers are tracking up from the 2023 lows. So, this potentially means that the available data can lead policy in taking preventative measures to bolster the construction labour market; we are not so far down the risk curve that we must be reactionary and be led by circumstance.

One way of categorising potential solutions that the government can explore is to look at different time horizons. It could be argued that technology, robotics, embracing construction in housing beyond brick and block and perhaps focusing on what can be printed or moulded - could effectively offset the labour requirement to a point where there is no shortage. Still, that's a longer-term strategy requiring significant changes to the system. A shorter-term fix to parallel these changes would be to run sizeable partnerships with educational institutions and schools and increase the number of entrants in the next 60 months by creating more enticing opportunities for young people wanting to learn these skills. One alarming statistic in the data is that 35% of construction workers are aged over 50, so there will be a point soon where the overall numbers begin to track downwards considerably quicker; so, as mentioned in the previous paragraph, there is ample time still to use the data, make these decisions, and get ahead of the issues, to get the next generation on the path to absorbing the experience of the previous.

As uncorrelated as some of these ideas may sound with our core business, our clients and developers will eventually benefit from changes further down the supply chain, as ultimately, it will increase the number of options when sourcing available contractors, which will eventually work towards stabilising rising labour costs. These changes will take time and will undoubtedly be on the coming government agendas; investment needs to be made into recruitment and retention, the impact of Brexit on the overall market needs to be sensibly unpacked, and regional-specific skills and training facilities need to be heavily invested in to nurture our homegrown workforce. These national-level changes will feed into our sector and, over time, will be a vital component in supporting the SME housing sector.

Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.

To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com

Don't invest unless you're prepared to lose money. This is a high-risk investment. You may not be able to access your money quickly and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.