Peter Johnson is founder of cladding specialist the Vivalda Group
2023 was a year of unexpected announcements. First, we saw sobering trading updates on consecutive days from two well-known FTSE 250-listed building materials distributors, both admitting that sustained hikes in interest rates were having a negative impact on turnover and profit.
“With interest rates at 5.25 per cent, the cold winds of sluggish construction activity appear to be with us for the next few months”
Following this trend, we’ve witnessed just about every major housebuilder laying off staff and reducing the number of new builds for the foreseeable future. In another telltale sign of the sector’s woes, homes are taking longer to sell, with some developers even offering free fridges and washing machines to lure buyers – a phenomenon we thought had disappeared with the 1990s.
2023 also saw a lot of highly regarded, small-to-medium-sized contractors going out of business, victims of the insidious nature of fixed-priced contracts in an inflationary environment, as well as retrospective cost-reduction strategies from developers and housebuilders.
With interest rates at 5.25 per cent, the cold winds of sluggish construction activity appear to be with us for the next few months. While we may have reached the high-water mark for interest rates, I fear that the drag effect is yet to work its way through the system, with homeowners coming to the end of fixed-rate mortgages experiencing financial hardship. This reality will inevitably continue to depress demand in the housing market.
A lack of innovation
Adding to the general gloom in construction, we also saw notable modular housing businesses, including Ilke Homes and L&G, pull the plug in 2023. Along with being lifechanging for the hundreds of people made redundant, it also says something fundamental about the UK’s attitude to innovation.
Other UK industries, such as FinTech, pharma and life sciences, appear to be making huge strides in harnessing technology, while construction still seems to be stuck in the 18th century, with its old-school, combative culture. Do we need more innovation? Yes. Do we need a more collaborative culture? Yes. Do we need to change things for the better? Yes. However, I don’t think we can rely on the vision of our government. We need to change ourselves from the inside. I’d like to see even more vision from our industry’s trade associations and better visibility right across the supply chain, right down to the subcontractor level.
Looking ahead
Looking ahead to 2024, the final chapter of the Grenfell Report is widely expected to be published, opening criminal investigations into both individuals and corporations.
In terms of economic pain, I think the high-water mark of inflation is behind us; in fact, we’re likely to see discounting as the market realigns itself. Even to this day my eyes water when I’m reminded of some facade brands increasing prices by as much as 45 per cent in 2021/22 to defray their raw material costs.
However, they may need to row back by offering project rates – or run the risk of losing market share to comparable products that are more competitively priced. It’s the iron law of economics: products price themselves into the market; products price themselves out.
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