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Although the construction industry has undergone
considerable change during the last decade, some of its more salient aspects
have remained. Its contribution to the Gross Domestic Product (GDP) has
averaged 7.5 percent over the 5 years from 1992 to 1996. The total number of firms
within the industry has declined, but it still contains an overwhelming number
of small firms and there has been considerable consolidation among the
medium-sized firms and some deep changes among the large ones. To some extent,
the decline in the number of construction firms has mirrored that of the total
number in the economy, but they now account for slightly over 11 percent of the total
number instead of the 15 percent of 5 years previously. The sole proprietors still
hold 51 percent of the firms, partnerships account for 19 percent and companies 30 percent; the rest
are sundry firms owned by the Government or charitable organisations. The
highest proportion of the firms are concentrated within the South East,
including Greater London.
The industry has lost a large number of its
personnel -- it is estimated that around 200,000 definitely left the industry
and a further 100,000 went to increase the already swollen ranks of the
self-employed. The consequence is that there are now, as there is a modest
pick-up in activity, serious complaints about the lack of skilled personnel and
of the unwillingness of the young to train to be skilled operatives.
The level of construction activity in the UK has risen and there has been a
slight increase in the output of the industry which exceeded £55bn for
1996 -- split almost evenly between new works, and repair and maintenance.
There is reason to be mildly optimistic about the prospects of the industry; it
is expected that growth will be led by the private sector housing and
commercial sectors, followed by infrastructure and industrial work. Overseas,
British contractors are successfully acquiring market share. It is estimated
that by 1996 they had increased the value of contracts to £6.5bn and the
value of work done is put at approximately £5.5bn. North America was the
most successful market, followed by Hong Kong and the Middle East. The
prospects overseas are also promising.
In the housebuilding sector, there is a trend
towards larger dwellings and there is a positive trend in the number of houses
built and a negative one for the number of flats. In terms of output value,
there was a decline over the last 2 years, from £7.4bn in 1994 to
£7bn in 1996. The number of dwellings completed in the UK fell from
197,992 in 1995 to 187,927 in 1996. However, the number of housing starts in
1996 increased by 3.5 percent to 183,248. In so far as the geographic distribution is
concerned, the highest number of dwellings were completed in the South East,
including Greater London. Housing repair and maintenance had a good 2 years,
and the output of that particular sector of the industry exceeded £14.9bn
-- over twice the output for new housing. The greater part came from private
housing with £8.3bn and the public sector contributed £6.57bn,
making the repair and maintenance sector a very lucrative one.
The
total output for the housebuilding sector was £21.94bn for 1996; of which
the private contractors' share was £20bn and that of the remaining Direct
Labour Organisations (DLOs) a mere £1.9bn and their share is still
declining. The number of the contractors from the private sector has been
declining for over 5 years and judging from the latest available figures, there
are now 62,685 general builders firms compared with 82,122 5 years ago.
However, the distribution according to the value of their turnover or of the
number of their employees, indicates that the pattern has not changed by very
much and there is still a very large number of tiny firms and a tiny number of
very large ones. If their relative efficiencies are calculated on the basis of
value of work done per employee, the large firms prove to be the most
efficient. In so far as the number of employees is concerned, there was a
considerable fall in the number of operatives employed by the general builders
in 1995, in relation to the previous year, but the number of administrative,
professional, technical and clerical staff increased.
The other type
of firm involved in housebuilding is that of the builders and civil engineers,
which are fewer in number and declining. In 1991 there were 10,050 firms thus
classified, but by 1996, the number had fallen to 7,430. Otherwise, they have
the same general characteristics as the general builders: there is a large
number of small firms and a small number of large ones; the large firms are
responsible for a larger proportion of the work done than the small ones, and
they are more efficient; the number of operatives in their employment fell in
1995 in relation to the previous year, but the number of administrative,
professional, technical and clerical staff increased.
The sales of
houses is affected by the changes in the population profile as much as by
lifestyle. It is forecast that the number of one-person, as well as
multi-person households is set to increase and this coupled with the trend
towards longer occupation, has influenced the type of dwelling built. The
number of houses built has increased and the number of flats has declined. The
trend is definitely towards the larger dwelling: one-bedroom houses as well as
flats have declined in number, but that of houses with three or more bedrooms
have increased. Houses are more likely to be bought by people aged between 25
and 44 years and, although social class is a diminishing factor, the buyer is
more likely to be of the AB or C1 group. The house buyer is more likely to be
in full-time occupation, married with children. The majority will have a
mortgage equivalent, on average, to 75 percent of the value of the property. The loan
to income ratio is of the order of 2.25 and the price to income ratio is of
around 3. Most of the loans are from building societies, but the banks are
increasing their share of the market but then, a number of large building
societies have become banks.
The prospect for the housebuilding sector
are good, but there is no boom in sight. The sector output should grow at an
average rate of 4.6 percent annually for the next 5 years -- the public sector growing
at around 3.8 percent and the private at 4.8 percent. House repair and maintenance is
forecast to grow by an average of 4.4 percent annually.
The market for infrastructure work is put at
£6.34bn and contrary to expectations, the sector has not increased
considerably after privatisation. In fact, the average annual rate of growth
over the 5 years from 1992 to 1996, was of the order of 2.6 percent, implying that in
real terms the monetary output was actually declining. Furthermore, expenditure
by the public sector was greater than that of the private sector, but the
former is still responsible for roads, which is the largest subsector. The
output for roads has increased slightly, but it is the combined subsector of
gas, air and telecommunications, which has experienced the highest average
growth rate of the order of 14.9 percent annually.
Infrastructure work is for
the large part, the domain of the civil engineering firms whose number has
declined during the last 4 years. It is estimated that in 1992 there was 4,617
firms, but that by 1995 that number had fallen to 4,160. The civil engineering
firms, as surveyed, have the same characteristics as the general builders in
that there is a relatively large number of small firms and a small number of
large ones -- whether judged by their turnover or by their number of employees.
Similarly, the large firms are responsible for the larger part of the total
value of work done and they are the more efficient. In contrast with the
general builders, they increased the number of their operatives and of their
administrative, professional, technical and clerical staff in 1995, in relation
to the previous year. Orders for infrastructure work comes from the public and
the private sector, the former playing a more important part and it is
estimated that the value of orders from the former amounted to £2.6bn
during 1996 and £2.1bn from the private sector -- roads of course, have
the lion's share. However, it must be borne in mind that infrastructure work is
usually spread over a longer period of time.
Overall, the prospects for
the sector are moderately good with some subsectors doing better than others.
Water and sewage are forecast to increase by a relatively small amount, but
gas, air and communications, railways and roads are forecast to increase at a
much higher rate. On average, the infrastructure could grow at an average
annual rate of around 4 percent.
Although it has been increasing over the 5 years
from 1992 to 1996, the output of the construction industry for work done for
the industrial sector is still relatively small. The output for 1996 was
estimated to have been of the order of £3.26bn. The problem with this
particular subsector is that the manufacturing sector has not grown by very
much, steel has undergone radical changes and coal has all but disappeared.
Fewer factories and warehouses have been built. Of the £3.26bn output,
£3.11bn came from the private sector -- the input from the public sector
has been minimal. However, it has contributed to some extent to the income of
the civil engineers, who are in many ways involved in the construction of
industrial installations.
The prospects for the industrial sector are
less favourable than for those of the others. In general, there has been no
change in the pattern of investment and, although there has been an increase in
the value of orders from the private sector, it is not large enough to make a
significant difference to future output of the construction industry. The
average estimated rate of growth for the output from the sector could be of the
order of 4.5 percent annually, at current prices.
Commercial construction is a much more important
sector in that it represents nearly 39.8 percent of the output of the construction
industry. It is highly cyclical and very sensitive to changes in economic
conditions. The sector has been favourably affected by privatisation and it is
expected that in the long term, the Private Finance Initiative (PFI) should
have a positive impact. In terms of market, it is estimated that the output
from new construction work was of the order of £10bn on average, reaching
£11.15bn in 1996. Commercial work is provided by the public as well as by
the private sector, and if the subsectors are the same, the pattern of outputs
is different. In the case of the public sector, it is concentrated on socially
desirable projects such as education and health, while for the private sector
offices, shops and entertainment dominate. The overall trends for both are
positive, although the respective average annual rate of growth is low, 2.2 percent
for the public sector and 1.7 percent for the private sector. However, there is a
strong element of volatility in the output and the orders, for private sector
work.
The building and civil engineering contractors who are generally
associated with commercial work are relatively few in number, but the general
pattern of their structure is similar to that of the general builders or the
civil engineers. There is a large number of small firms and few large ones,
their total number has been declining over the years with a strong rate of
attrition among the micro-firms and further consolidation among the medium and
large ones. The large firms are responsible for the larger part of the value of
the work done and are on the basis of estimated output per employee far more
efficient.
As for employment, the number of operatives fell from 45,700
in 1994 to 40,000 in the following year and that of the administrative,
professional, technical and clerical fell from 39,363 to 37,242. The value of
orders for both sectors has increased, but there is no prospect of a boom,
under present conditions. If the present government launches a programme of
work for the education and health sectors, the prognostic could change
dramatically, but this is rather unlikely.
The private sector could
benefit from the transfer of work from the public sector under the PFI, but
this is not for the immediate future as the consensus of opinion is that PFI
work is still too complicated and too expensive to bid for. Nevertheless, there
could be an increase in output of the order of 4 percent to 5 percent annually, on average,
over the medium term with the private sector growing at around 3 percent annually, but
it is a volatile sector and orders pending may pour in should the prospects of
higher returns for developers appear.
The trade in basic construction materials follows
the fortunes of the construction industry. Over the last 5 years, the apparent
UK market for these materials has increased, but slightly -- individually most
experienced a decline in the last 2 years. The industry was adversely affected
by the decline in construction and, in many cases, production was not only
scaled down, but plant was put out of commission or closed definitely.
It is estimated that the market for basic building materials now stands at
£7bn, but that the market for all materials and components could be of
the order of £30bn. A number of manufacturers have scaled down their
production capabilities, but there is still a large number of firms employing a
small number and there is none employing more than 500. However, in this case
there is a divergence between the classification by number of employees and
turnover ranges which may lead to the conclusion that the firms with the larger
turnovers have fewer employees. They are probably more mechanised and
computerised. In so far as distribution is concerned, there has been little
change in the number of builders' merchants -- a slight decline which may be
statistically insignificant.
The prospects for the materials market are
moderately good, as they are dependent upon the trends in the construction
industry and that of the DIY sector. However, the expected growth is not
expected to exceed 3.5 percent on average annually. There is a very high level of
competition in the industry and penetration of imports is still very high,
particularly in the case of timber and its derivatives and products.
Overall, there is room for some moderate optimism for the future prospects of the construction industry. There is no boom in sight, but there is the prospect of rather steady growth in output which should continue into the first few years of the next century. However, the number of firms is likely to continue to decline and further consolidation at the top is expected.
Text © 1997 Key Note
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