The evidence reviewed indicates that the construction industry and its labour model is at a critical crossroads in terms of its long-term health. Whilst the diagnosis points to a deep-seated market failure, there are certain industry trends and wider societal changes happening now that represent both unprecedented risk and opportunity for the industry and its clients. If the opportunities are not harnessed, the risks may become overwhelming.
The prognosis for the industry, if action is not taken quickly, is that it will become seriously debilitated. It is facing challenges that have not been seen before which create an absolute imperative for change. Previous calls to arms have not been acknowledged by the industry or its clients at any real scale and somehow the industry has continued to 'muddle through'. Other than in isolated examples of exemplar activity, many of which have been showcased in this review, it continues to organise itself and deliver sub-optimally. In turn its clients have begrudgingly accepted this.
It is unlikely, based on past evidence and the pressure of delivering their own business requirements, that clients will simply stop using the industry until it improves its proposition. Recent capacity-led construction cost inflation has certainly undermined project viability, especially in the residential sector where issues have been exacerbated, and has led to projects stopping as they have become unaffordable or in some instances physically undeliverable as capacity is not available. Indeed some clients have deferred construction commitment in expectation of future falling construction costs, in effect, a self-fulfilling prophecy. Possible post-Brexit demand side weakening may now create the feeling that a natural realignment of supply and demand is taking place that will allow the construction sector to 'sort itself out'. History suggests this will not happen and we need to look beyond this short-term correction if we want to break out of a continuing boom and bust cycle of overheating followed by permanently damaging attrition in a downturn.
The real ticking 'time bomb' that needs to be recognised is that of projected workforce size and demographics as highlighted on page 32. Although an ageing workforce is not a problem confined to the UK or just the construction industry, the scale of the problem is particularly acute in UK construction. In addition, we know from past experience that further workforce attrition will occur in an economic downturn such as we are at risk of entering following Brexit.
What is currently seen as a labour shortage can quickly become an endemically under-utilized industry with workers leaving to pursue opportunities elsewhere. Based purely on existing workforce age and current numbers of new entrants, we could see a 20-25% decline in the available labour force within a decade. This scenario has never before been faced by UK construction and, other things being equal, would render the industry incapable of delivering the levels of output and GDP historically seen. This would undermine the UK's ability to deliver critical social and physical infrastructure, homes and built assets required by other industries to perform their core functions.
Even before considering future resource attrition (and based on the current skills base and productivity levels), any aspirations of levels of house building on a sustainable basis, in excess of 200,000 units p.a. appears to be physically impossible using traditional methods. Furthermore, anything even approaching this level will stimulate cost inflation and exacerbate performance issues.
In reality, when factoring in projected workforce shrinkage, house building capacity might fall nearer to 100,000 - 150,000 p.a. in the medium to longer-term without intervention.
It is worth referencing the plight of Japan in the context of what an ageing workforce might mean for the UK. As a country with one of the most rapidly ageing populations in the world, Japan provides powerful future indicators for the UK construction sector that it should not ignore. Through a combination of age led retirement and the lack of new entrants, the Japanese construction industry has shrunk by approximately a third since 1997 with a peak workforce then of 4.6million now reduced to a little over 3 million.18
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18 Toko Sekiguchi, 'Japan Opens Door Wider for Foreign Workers: Tokyo Looks to Address Construction Labour Gap', The Wall Street Journal, 4 April 2014.