By Jerald Solis, Business Development and Acquisitions Director, Experience Invest
The original 29 March Brexit deadline may have been pushed back until 31 October 2019, but questions still remain about what the UK’s withdrawal from the EU will mean for the future of the economy. The lack of guidance and leadership from the government has left the private sector in the dark, and for large industries such as construction, this has made it incredibly difficult to implement long-term strategies. So, what impact could Brexit have on the construction industry and the companies responsible for meeting the infrastructure needs of the UK?
Before we consider this important question, it is helpful to look back at how the sector has fared since the 2016 referendum. After all, amidst political uncertainty, it’s been positive to see the resilience of the construction industry.
In 2017, the sector contributed £113 billion to the UK economy – representing 6% of total economic output. Meanwhile, construction output has been on the rise; in Q3 2018, output was 14% higher than in Q1 2017.
When considering the strength of the sector, we also cannot ignore the investment being funnelled into projects across the country. The development of major transport links such as HS2 immediately comes to mind, as does increased rates of housebuilding to meet demand in rising urban hubs like Liverpool and Newcastle.
With construction companies driving the modern upgrade of existing property and infrastructure in the UK, there’s no denying the importance of the sector as a driver of economic productivity and growth. What are the challenges then that the industry could face as a result of Brexit?
Could Brexit exacerbate the skills shortage?
Looking to the future, perhaps the key concern for construction companies is having access to skilled workers. After all, a significant proportion of the skilled workforce is made-up of workers from the EU.
Across the UK, the number of EU workers in the construction industry is 7%. In London, this figure rises to 28%. The uncertainty caused by Brexit is already impacting a large number of workers, and companies have still not been offered some kind of guidance from the government as to how the working rights of EU employees could be affected.
There has been some speculation of applying Tier 2 visa regulations to EU workers, as is currently the case with non-EU workers residing in the UK. However, given the unsuitability of this scheme to many construction workers and tradesmen, the government may well have to launch a new visa category to maintain a skilled workforce.
Maintaining access to materials
The bedrock of sustainable construction is having easy access to products and materials. A departure from the European Union Customs Union – and with it, the severance of free trade agreements – naturally poses some long-term challenges.
According to Build UK, more than £10 billion worth of construction products are imported from the EU each year, representing nearly 15% of all products used in UK construction. Coupled with the gradual decline in the value of the Pound, losing tariff-free access to the single market will cause construction companies to be faced with increased operating and construction costs.
The severity of the outcome remains to be seen, but regardless, the government must work closely with construction companies and offer them comprehensive advice regarding how best to prepare themselves. At the same time, establishing a fair withdrawal deal that protects trade must also be placed at the top of the agenda.
Addressing the housing crisis
The issues of access to skilled workers and materials are not stand-alone concerns, however. They feed into the pressing challenge of addressing the national housing crisis.
It is widely acknowledged that the UK housing crisis revolves around issues of supply and affordability – namely, there are simply not enough affordable houses on the market to meet demand. Estimates have put the number of new homes needed in England at between 240,000 and 340,000 per year, accounting for new household formation while also meeting the mounting backlog of demand for suitable housing.
In 2017/18, the total housing stock in England increased by around 222,000 new homes. While this is 2% higher than the year before, it is still lower than what is required. Brexit makes the challenge even more complicated, creating more obstacles for construction companies attempting to meet current targets through new-build developments.
The government’s strategy of increasing the number of new homes available on the market has been driven by the construction of new-builds in urban and regional areas. As such, a sudden skills and materials shortage could create a significant obstacle.
As things stand, the future of UK construction looks bright irrespective of Brexit, not least because of the demand for housing and infrastructure. Indeed, the amount of investment being injected into construction, coupled by the range of new developments springing up in thriving areas such as Liverpool, Newcastle and London commuter towns like Luton, mean there are no shortage of projections. However, given the challenges Brexit is posing, the government cannot afford to leave the industry in the dark – guidance and leadership is needed to ensure developers are positioned to plan for the future.