Economic stagnation threatens the UK, but architects' expertise and invention capability mean they are well positioned to deal with this challenge while also tackling the climate emergency
An economy stagnating, inflation rapidly rising, political uncertainty and a war in Europe. The plain sailing that we hoped would follow the pandemic is receding to the horizon. What next?
The risks are on the downside. These include the ongoing effects of the pandemic (lockdowns in China and the lingering threat of new variants), the war in Ukraine, the effects of Brexit and the growing possibility of a UK-EU trade dispute, continued supply chain disruption, rising energy costs, high inflation, rising interest rates, growing inequality, falling business confidence and a consumer cost-of-living crisis.
Together these add up to what looks like a difficult year ahead – low growth, high inflation and struggling households and businesses. The Bank of England expects UK growth to weaken and be less than 1 per cent each year for the next three years, inflation to reach 10 per cent, and real household disposable income to fall by the greatest amount since records began in 1964. The OECD concurs with this pessimistic outlook, forecasting that the UK will grow at a slower rate than all other G7 countries and post zero growth in 2023.
This economic malaise is spilling over to the construction sector. Current challenges include shortages of tradespeople, delays in planning applications, falling domestic and commercial confidence, and project and material cost inflation.
To take that last challenge as an example, in 2020, the year of lockdowns, material prices were stable. Not now. Recent months have seen rapid cost increases. The BEIS Construction Price Material Index (for all work) has increased by 38 per cent since January 2020. The cost of each monitored product has increased this year, and for some, the increase has been dramatic: ‘fabricated structural steel’ is up by over 30 per cent and ’imported sawn or planed wood’ by over 20 per cent.
These cost increases, compounded by increased construction worker wage costs, are directly affecting project costs. The RIBA receives reports of clients postponing projects once provisional costs are supplied or tenders received. Contractors who are contractually bound to fixed-price contracts and who are operating on slim margins are vulnerable.
But this presents an opportunity for architects if they can provide designs that meet the challenge of restricted product availability and which innovatively provide alternatives (and not just substitutes) to traditional products. This can go as far as questioning the need for new buildings, and promoting the redesign, reuse and refurbishment of existing stock wherever possible.
That’s one example in a bit of detail. As we move into a time of slow growth or even recession, it’s worth taking a step back from the data of the month to take a broader view.
Economic growth isn’t constant. Recessions come and cause hardship and suffering. Sustained growth can be stymied by market corrections, bad governance, poor policy, corruption, and external shocks, including pandemics and war. We are currently facing at least some of these.
All recessions are different. In living memory, we’ve seen the stagflation of the 70s, the recession of deindustrialisation in the early 80s, the early 90s recession, the Great Recession of 2009 and more recently, the Covid-induced rapid fall and recovery. Recessions are times of uncertainty, and so capital investment is subdued, and fewer buildings get built. Typically, the construction industry and architecture do better than the general economy in good times and worse in bad. The graph below illustrates that economic swings are greater for the construction industry than for the general economy.
The RIBA Future Trends Survey, launched in 2009 as a response to the financial crisis, monitors architects’ attitudes to future workloads. The score is calculated by deducting the percentage who expect workloads to decrease from the percentage of those who expect it to increase. Practices tend to be optimistic. The recovery from the 2009 recession was slow but steady. Optimism waned as the UK’s future relationship with Europe remained unclear. The first lockdown devastated confidence but the profession recovered strongly. The graph shows a profession that is affected by events, but which can navigate them through innovation, adaptability, and sound business management. For example, the post-Covid recovery has been characterised by architects designing buildings for new ways of living, for the race for space and commercial property adaptation. Practices have reduced overheads to preserve viability and profitability.
Recessions are also times of innovation. In construction, innovation typically comes through new design approaches, new tools (such as BIM and digitisation), and new and better construction products. In the past decade or two, architects have been clear leaders in the first two, so strengthening the profession’s resilience.
We are, of course, also facing a climate emergency. The idea that we need to abandon economic growth exerts a strong pull, particularly in high-income countries where over-consumption has become habitual. Yet economic growth is a good thing. It brings with it very significant gains in health, education, life expectancy, and life quality. Some examples: Global life expectancy has increased from under 50 in the 1950s to over 70 today. In 2020 1 in 27 children died before reaching the age of five; it was 1 in 11 in 1990. Adult literacy has improved from 68 per cent in 1980 to 87 per cent in 2020. Life improvements such as these are globally and nationally correlated with increases in economic performance.
So, we need to direct economic growth rather than abandon it. Consumer trash and bigger cars, or carbon reduction, schools, hospitals, and decent housing? The UN Sustainable Development Goals include Goal 8: 'Promote sustained, inclusive and sustainable economic growth', which embodies the aims of increasing productivity while decreasing resource consumption, creating decent job, and decoupling economic growth from environmental degradation. That’s the aim; growth that brings widespread benefit, but which reduces and ultimately ends the environmental degradation that has accompanied it so far.
This could be possible. Economic growth does not necessarily mean increased carbon emissions. Taking the long-term view, since 1990 (the baseline of the Kyoto agreement) the UK’s annual carbon emissions have fallen by around 40 per cent while output has increased by around the same figure.
The UK has made significant steps in reducing annual carbon emissions. We are on the right track but moving too slowly.
The pace of decarbonisation needs to rapidly accelerate (and measuring and reducing carbon outsourcing or ‘carbon leakage’ needs prioritisation – not least in construction products).
If there is one area where innovation is most needed and which architects can lead, it is our response to the climate emergency. With around 40 per cent of carbon emissions being associated with buildings (and 1 per cent with concrete production alone), architects are uniquely positioned to help the economy grow sustainably, not least through adopting the RIBA Climate Challenge. Here architects are again leading, and it is through creating and developing expertise in sustainability that practices can create long-term resilience for themselves, communities and the planet.
Adrian Malleson is head of economic research at the RIBA