Our second report from the RIBA/NBS economics panel looks at the chronic lack of housing supply and opportunities abroad
The second session of the RIBA & NBS Economics Panel met at the RIBA in June, this time to talk about international working and UK housing, as well as to revisit the prospects for the UK construction industry. Five experts came, each with their own view of the market. Sharing their insights were Simon Rawlinson, head of research and insight at EC Harris; Cluttons’ research director Sue Foxley; economics director at the Construction Products Association, Noble Francis; Peter Oborn, RIBA vice president international; and Adrian Dobson, RIBA director of practice. Chairing the discussions was Adrian Malleson, head of research at RIBA Enterprises.
State of the market
The market for UK architects looks strong and is improving. GDP is forecast to rise by at least 2.5% per annum in the next few years. The UK is outperforming almost all other European economies. Construction growth is set to exceed that of the general economy. Led by activity in the housing sector, we have seen four consecutive quarters of construction growth, and five of rising business investment. ‘We can now be much more positive about future growth,’ Francis noted, ‘but it is of course from a very low starting point.’
The picture of growth is backed by the RIBA Future Trends survey. It shows three consecutive quarters of growth in the value of work in progress for architects, up about 10% on an annual basis. Dobson pointed out that ‘it too is from a very low base, and there still seems to be quite a lot of spare capacity, so we aren’t yet seeing any overall increase in margins, or aggregate levels of employment’.
Concerns remain of course. Foxley pointed out that EU economic recovery is still a worry, and Rawlinson observed that it was lumpy across sectors. The panel was also clear that continuity of policy, legislation and taxation was required to give the industry stability – extreme or ad hoc policies were damaging. But the consensus was clear: the recession was over, and we could look forward to a more stable market.
UK average house prices were up around 10% on last year, Francis told the panel, with London seeing a near 19% year-on-year average increase. Prices in London were now 32% above the 2008 peak. As Foxley put it: ‘When it comes to housing, London operates in a global rather than national echelon.’ This house price inflation is not a direct result of government schemes but is due to a chronic lack of supply. While building is accelerating (there’s been a 21% increase in housing starts), production cannot meet growing demand.
Getting capital for a deposit is a challenge for many. Foxley pointed out that evidence from the rental market suggested people are moving to cheaper properties and locations to try to save towards deposits. Those who do have London property are hanging on to it.
New models
The UK housing market has some deep problems that won’t be solved overnight. The panel saw the need for new models to get houses built. The incentive for developers is to maximise the number of units produced, not to meet the needs of occupiers. We need to shift towards the right kind of properties being built. More social housing (not just ‘affordable’), and more self-build need to be an increasing part of the mix.
Rawlinson suggested architects might adapt to the business process behind house building. ‘I would definitely encourage architects to design projects with the developer’s cash flow in mind,’ he said. ‘Design strategies which allow phased construction and gradual release of units to the market will be welcomed’. And improved infrastructure can draw more areas into the economic centres of the UK, particularly London. Might High Speed 2 result in one or more new towns, plugged directly into the capital?
The panel consensus was that housing’s year-on-year price increase would fall back a little. The sales market has slowed over the last month, partly due to a lack of affordable properties, so we could expect price increases to dip – but there won’t be any crash.
Francis noted: ‘Canada and Australia have a property bubble; we have a chronic lack of housing, particularly in London.’
The UK housing market consistently fails to meet demand, which translates into seemingly ever-rising house prices. That failure can lead to poorer buildings, communities and environment, but this gives design professionals opportunities. Architects and others can have an increasing role in creating the kind of built environment we need.
The panel pooled its thoughts on where the UK construction industry should export its expertise. While the UK architectural services industry runs a healthy trade surplus, Francis noted a significant deficit in our balance of trade for construction products. To export better, we must all play to our strengths.
Nuanced picture
It is tempting to look at the fastest growing markets and think this is where we need to be. Some are growing staggeringly quickly: for example China used as much cement in three years, 2011 to 2013, as the US did in the whole of the 20th century. If you’re looking for scale and growth, go to China. But the panel painted a more nuanced picture. It’s people that do business, and a successful overseas business is based on good professional relationships. Foxley pointed out that movements of expertise and capital are inter-related.
The panel also pointed out that the UK’s position as an international business centre gives us a real advantage. Relationships formed in the UK with workers from overseas help us. First, when those who have worked or studied here return to their native country, they may become ambassadors for UK business. Secondly, relationships formed in the UK can become the foundation for our working in overseas markets. International working is a two way street. Our openness to worldwide business here helps us when we go there.
China used as much cement from 2011 to 2013 as the US did in the whole of the 20th century. But the panel painted a more nuanced picture
When discussing international working, another theme emerged, the importance of standards. We need to be at the cutting edge of innovation here to influence and survive. There is competition though. LEED has a good foothold in the Middle East as the default sustainability standard, which helps the US export, because its designers, contractors and manufacturers already work to those standards. But UK standards can win ground too, already having a foothold in many Commonwealth countries. Oborn noted that UK Trade & Investment has a large appetite for all that the RIBA and profession can offer. It needs our content to take out across the globe.
Rawlinson highlighted the importance of BIM here, which is breaking down barriers between professions and creating more value for clients. Presently, we are a world leader in developing BIM, and can take this expertise abroad. Adopting BIM practice gives those working in overseas markets opportunity to leapfrog their competitors. The potential is exciting. With the standards embedded in BIM tools, both prescriptive and performance-based requirements can be designed, tested, implemented, verified and maintained. We in the UK are leading the development of those standards, but the panel questioned whether the government is investing enough. Seed funding now for the most innovative practice could create significant payoffs for UK plc in the years to come.
The new RIBA Plan of Work gives a fresh way of thinking that will change our industry in ways we don’t yet know, from planning and strategic briefing to post-occupancy, energy in use and recyclability. As Oborn said, ‘There are opportunities for new forms of practice.’
The UK needs to exploit its world-leading expertise in design quality, innovation and sustainability. Developing countries are moving from quantity to quality in their construction sectors, creating opportunities for UK consultants. There are a growing number of design and construction professionals, notably in the Middle East and China, who demand increasingly high standards. Dubai, for example, is fast becoming a hub for design excellence. Oborn stressed that this is about working in partnership; professionals from each country developing together their expertise and specialist knowledge.
Partnerships need to form within the UK too. Different professions can work together to enhance our offer. We create the built environment through multi-disciplinary working. The demand for scale and reach in overseas markets means there’s a need to work together to provide ‘single point’ solutions.
For professionals looking to start working overseas, the panel advised: do your research. Learn what the clients need, learn about the culture and be aware of it – it’s a partnership after all. But avoid the temptation of chasing every opportunity that comes your way. International working for the long term is built on a coherent, long-term strategy, and all work sought should form a part of it. Oborn stressed that the UK professional community would help, saying: ‘Go, seek advice – there’s plenty; and people are willing to give it.’ •