Industrial and political briefing

A digest of industrial and political news and comment, with BuildInsight views on read-across. Where relevant, links are provided to the prime sources and company websites.

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14 Feb  Various aspects of the building supplies industry are seeing marked increases in demand during the floods, FT. These include orders for generators, dehumidifiers (a 44% increase y/y, according to DIY chain B&Q), flood protective doors and self-closing airbricks. Meanwhile, mounting criticism of "hopelessly outdated" sandbags was highlighted in the paper. They are highly ineffective, it was claimed, chiming with a 2009 Environment Agency report, and far less effective than aluminium panels over doors and airbricks and valves controlling backflows through toilets. 

12 Feb Two big contract awards: Costain JV wins initial £900m seven year Network Rail electrification contract, extendable by three years; Carillion Middle East JV awarded £110m project to build 5 Star Hard Rock Hotel in Abu Dhabi.

11 Feb More than 100 building sites a week are raided by thieves police records show, Construction Enquirer. Of these, 35% of entry involved force, 5% with legitimate keys and 21% were simply left unsecured.

Organisers of the 2022 World Cup in Qatar have drawn up a 50 page "Workers' Charter", following the death of almost 200 migrant workers last year, BBC. It covers aspects including health & safety, working conditions, prompt payment of wages and child labour.
Insight: this is likely to push up construction costs (for justifiable reasons), but, one suspects, contractual disputes for the many foreign companies involved down the line. Contractors and consultants should check their liabilities.

Bid prices offered by would-be buyers of Spanish homes fell short of offer prices by 23% in 2013, Bloomberg.
Insight: this suggests prices have still further to slide in Spain

10 Feb London developer Galliard Homes is to buy West Ham United's Upton Park stadium when the football club moves into the converted Olympic Stadium in 2016, BBC. It plans to convert the east London site into 700 homes as well as retail, leisure and underground parking facilities. Construction is projected to finish in late 2018.
6 Feb Rightwing think tank Civitas has proposed the UK should bar non-residents or short-term visa holders from outside the EU from buying homes in this country (with the emphasis on London) unless their investment will add to the housing stock. In effect the plan, which is implemented in Australia, would curb non-EU investors from buying secondhand homes and would only permit them to buy new homes if it were demonstrated that this would result in at least one additional home being built.
Insight: highly unlikely but interesting that a right leaning body is proposing a policy that sounds both interventionist and anti-free trade. Further evidence of the increasingly febrile nature of the housing debate ahead of next May's General Election.

Meanwhile ... the FT reports that home buying in London by the super-rich (mainly foreigners) contributes strongly to the economy, with an estimated £4bn being spent annually on goods and services by the richest - even if their homes are empty for most of the year.

Prime Minister David Cameron has pledged another £100m to repair flood defences, in addition to the £2.4bn spent during this parliament, in the wake of the current flooding affecting much of Britain.
Insight: a boost to civil engineers; probably more to come.

5 Feb House prices are likely to keep rising for at least another 10 years, Chancellor George Osborne told a House of Lords committee yesterday, Times. He told the Economic Affairs Committee that a shortage of supply would still be putting pressure on prices "in ten years' time" and also said he was unlikely to bring down the £600k cap on Help to Buy purchases.

30 Jan The government is to announce a wide-ranging review to examine how to encourage City investors, insurers and pension funds to put up cash to build affordable housing schemes, Guardian. Danny Alexander, the Lib Dem chief secretary to the Treasury, and Communities Secretary Eric Pickles are set to announce a review that will examine how "innovative financing mechanisms" could be used to raise the rate of affordable housebuilding. Alexander is keen to see whether the 89 local government pension schemes, which together owned £148bn of assets, could act collectively and use their cash to provide significant investments in housing in England and Wales.
29 Jan A Labour Assembly member of the Greater London Authority has called on Mayor Boris Johnson to set up a City Hall-run corporation to build homes directly, FT. A report by Tom Copley calls for building to be funded by borrowing against the GLA's revenue stream.

28 Jan The first phase of Help to Buy, offering equity loans of up to 20% on new build homes, has resulted in 12,875 legally completed purchases in England in the scheme's first nine months, ONS. Of these only 6.3% came from London, with the remainder widely spread around the country. A further 6,446 are defined as "scheduled-out sales", at varying stages in the purchase pipeline, but with no certainty of completion. Of these 7.9% were from London.
Insight: further compelling evidence that the first phase of Help to Buy is making little impact where the housing crisis is most acute, London.

27 Jan Legal & General Property has won planning permission to build 1,000 new homes as part of a mixed use development in Crowthorne, Berkshire, Construction Enquirer.

Taylor Wimpey is to close its Prestoplan timber frame factory, Construction Enquirer.
Insight: several housebuilders have entered and then pulled out of or scaled back timber frame and other methods of system building manufacture. Reasons have included a failure to sell sufficient quantities to rivals, with most output being used in-house. TW recently stated it was "approaching optimum scale".

22 Jan Interesting feature on peer-to-peer funding of smaller housing developers in today's FT. New P2P lenders - which match individuals, hedge funds etc with individual companies - and other forms of alternative funding are starting to fill the gaps left by banks among small and medium enterprise developers. A total of £850m has been lent since 2005, but this is thought to be doubling every six months and the sector is to be regulated by the Financial Conduct Authority from April. Newly formed Wellesley & Co offers loans of around £200k - 500k to builders including individuals at average rates of 13%. Other innovative models include "crowdfunding". This may reverse the decline in SME development: developers of 500 units or fewer per year have fallen from two-thirds of industry output in the late 1980s to one-third currently, with lack of access to conventional bank funding being cited as a key factor.
Insight: this could become a game changer, especially given Labour's policy to increase housebuilding by SMEs. The question is, if too many new funders enter the market, could discipline slip?

17 Jan The Treasury is considering builders' "hush funds" to pay "thousands of pounds" to local residents that oppose development, according to an exclusive report by Property Week. According to the report, the Treasury is in advanced talks with the UK’s biggest housebuilders about a pilot project whereby they would hand over thousands of pounds as “sweeteners” to individual households that oppose their schemes or to local authorities to fund other incentives such as council tax cuts. Details have yet to be finalised, but industry sources suggest developers are likely to have to fund the payments themselves if the Treasury refuses to financially back the scheme.
Insight: this has the hallmarks of a political bombshell and, presumably, a gift to anti-development campaigners.

The cost of repairing flood damage to roads following the recent bad weather has been estimated provisionally at £400m, BBC.

13 Jan On his first day as chairman of HS2, Sir David Higgins tell the BBC Radio 4 Today programme that he will strive to have the North-South rail project built more cheaply than the £50bn estimate and delivered quicker than 2026 to Birmingham and 2033 to Manchester and Leeds, as currently anticipated. Plans were also announced for a special further education college dedicated for training engineers for the project. He remained committed to building a spur to Heathrow Airport, without being drawn on his views of whether it, rather than the Thames Estuary, would be chosen for South East airport expansion.
Insight: despite some political opposition, this is more evidence of the project progressing.

10 Jan A four-year delay in implementing flood prevention measures on new housing developments may be nearing an end, despite missing the latest forthcoming deadline, BBC. The Flood Act of 2010 obliged builders to landscape developments so water from roofs and driveways seeps into open ground, rather than into the water system. But opposition from developers and spending cuts in the Department for Environment, Food and Rural Affairs mean that agreement is unlikely before a deadline in April. Housebuilders oppose compulsory construction of ponds and hollows, since this increases costs and uses up space for housing. However, the BBC reports that councils may agree to levy annual charges on householders in these developments for the maintenance of the features.
Insight: it is still not clear whether builders will have to construct the flood alleviation measures. If so, this could affect the viability of sites and, ultimately, the value of land in areas of flood risk. Another example of housebuilders being thrust into the political spotlight in the run-up to the next election.

8 Jan Leading South East housing association One Housing Group, which owns 13,000 properties, is to bring its maintenance operations in-house, as it believes this offers better value for money than out-sourcing, ConstructionEnquirer.
Insight: this is likely to be studied closely by other HAs following years of the trend going in the opposite direction.

6 Jan Chancellor George Osborne predicts another £25bn of spending cuts will be needed after 2015 election, BBC. These include cutting housing benefits to under-25s and restricting council housing for those earning over £65,000 a year.

Insight: A continuation of the rapidly changing landscape of social housing and confirmation that housing will be one of the major political footballs of the election campaign.

Potential blushes for David Cameron as Telegraph reports that single mum "poster girl" for Help to Buy, who the PM met recently to promote the scheme is a director of an estate agency, drives a £33,000 BMW convertible and bought the £145,000 Southampton flat through her own firm.
Insight: as above.  

Balfour Beatty wins £154m Olympic Stadium transformation contract, to host 2015 Rugby World Cup and, from 2016, to be home of West Ham United football club.

2 Jan Statistics for the first three months of the second, equity guarantee, phase of Help to Buy show 6,000 people applied for mortgages and 750 have completed their purchase, according to the Prime Minister's Office. The take-up so far appears to be heavily skewed to first time buyers, who make up over 80% of applicants, and those outside London and the South East, who account for around three-quarters of approaches. The average purchase price was £160,000, which compares to the average UK house price of £247,000.  The average monthly mortgage repayment is c. £900, representing 23% of the average gross income of applicants, at c. £45,000. (But CML data, notably not specifying loan-to-values, records FTBs in the wider market pay £740 a month on average purchases prices of £197,000 and with a similar average income of £47,000, representing 19%.) Both Help to Buy schemes offer buyers to buy with 5% deposits; the first, launched in April 2013 involved government-backed equity loans for newly built homes only. So far 20,000 homes have been bought under the earlier scheme. 
Insight: these are politically palatable statistics: FTBs rather than feared traders-up or even second home buyers; and helping the rest of the country, rather than the South-East. But this is likely to be a simple factor of house prices placing insurmountable loan-to-income hurdles for the majority of would-be house buyers and the scheme is likely to have little impact where, arguably, it is most needed. An apparent divergence is emerging, with the first phase most popular with buyers of new homes and the second with the secondhand market. 

23 Dec The cap on mortgages under Help to Buy could be halved to £300,000, according to Whitehall sources in the Telegraph over the weekend. This would effectively curtail the availability in London and the South East of the two schemes (equity share on new build and mortgage indemnity guarantees for new or secondhand homes, both offering 95% loan-to-value).
Insight: There could be curbs on H2B, but the impact will probably not be as dramatic as suspected. The first phase of Help to Buy has been naturally restricted in the SE because high salary multiples have ruled out many potential buyers.

19 Dec  Alternative investors, such as high net worth individuals and hedge, life and pension funds, are "flooding into" Britain’s residential development market, FT. Research by Knight Frank indicates there are now 75 active lenders to residential developers, and nearly three-quarters of investors intend to increase their levels of finance to housing developers in the coming year.
Insight: this is trend is likely to continue, but more likely to providers outside the main volume housebuilders, which rely on more traditional funding. On one hand, this could back greater innovation, such as "build-to-rent", but it could fund localised supply bubbles.

18 Dec Leading London housebuilders sign a declaration that they will not market developments to foreign investors ahead of UK buyers, Building. 11 builders, including Barratt, Taylor Wimpey, Telford, Galliard and Fairview agree to "offer homes for sale in the UK before, or at the same time as they are available for sale overseas", in an initiative by the Home Builders Federation. Berkeley group, the capital's largest housebuilder, has already made a similar commitment. The move follows controversy that selling developments "off-plan" exclusively to foreign buyers has stoked house prices. Research by Savills shows that overseas investors put £7bn in to the London housing market in 2012, more than a third of the value of all mortgages advanced. House prices rose by 12% in the capital in the year to October, according to ONS figures out yesterday (see Economic briefing). Housing minister Kris Hopkins welcomed the move.
Insight: an indication of the political sensitivity of foreigner buyers allegedly inflating the price of new developments. In combination with new Capital Gains Tax impositions for foreign buyers, it could take some of the heat out of the London development market, mainly in non-Prime Central sites.

17 Dec Two Heathrow proposals (a third and possibly fourth runway or a doubling of the north runway) and one Gatwick (a second runway) are the three shortlisted in the Airports Commission's Interim Report on options for expansion of capacity in the South East of England. Stansted is not on the list and the Thames Estuary airport proposal favoured by London mayor Boris Johnson is to undergo a period of further examination over the next six months. However, the Thames plan would present "many challenges and uncertainties", including the cost of the project and complexity of realigning the economy and infrastructure of the South East. The final report will appear in summer 2015.
Insight: "Boris Island" is merely in "holding pattern"; Heathrow expansion remains the favourite. House price boost for the Stansted area.

Housebuilders react furiously to Labour leader Ed Miliband's assertion that they "hoard" land, FT.

16 Dec Labour is to step up its focus on housing as a cornerstone of its election campaign. It plans to have 200,000 homes a year built in England by 2020. In a speech today, leader Ed Miliband warns that his party would penalise any housebuilders that “hoard” land: "The next Labour government will give councils powers to charge fees or, if necessary, purchase such land, so that developers have an incentive to do what they went into business to do. "We will back home builders. But we will tell land hoarders with sites that have planning permission that they must use it or lose it." Other plans, according to the BBC, include allowing councils to expand beyond their boundaries to provide housing that is blocked by adjacent authorities. Labour will also encourage self-build.
Insight: further evidence, following threat to impose price freezes on energy firms, that Labour under Miliband would be significantly interventionist. Hard to see how government could enforce "use it or lose it" policy and housebuilders would probably be able to claim they were trying to build as fast as they could. 

13 Dec Committee of MPs wants HS2 to be accelerated, possibly by building northern and southern phases to be built at same time. Sir David Higgins, incoming chairman of HS2, says he will consider the proposal, BBC.

12 Dec EU investigation into possible illegal state aid could delay £16bn Hinkley Point nuclear plant by a year, Telegraph.

Housebuilders' directors' bonuses rose 78% during 2013 and now stand at 67% of salaries (which rose 6% y/y), up from 40% the previous year, according to research by recruitment group PSD Group for Building.

Shangri-La confirms its luxury hotel in London's Shard tower will not open until 2014, more than six months late, due to fit-out delays, Building.

Rent arrears are becoming the fastest-growing debt problem in the UK, says the Money Advice Trust charity, BBC. In the first nine months of this year, its telephone helpline received nearly 20,000 calls from people behind with their rent, up 37% increase on 2011. More than half the calls to the National Debtline are now from people renting their home. More than a third of households were renting in 2012, according to the ONS. 

11 Dec In an innovative deal, social housing provider Places for People has been selected as a management partner for the Housing Investment Fund, a joint venture between Manchester City Council and the Greater Manchester Pension Fund to help boost house building in the city. The JV will use land owned by Manchester City Council and finance provided by the Greater Manchester Pension Fund to fund the building of 241 homes across five sites in during 2014. Around half will be available for market rent and the rest for open market sale. PfP will act as residential management partner for the HIF, and will enter into a 20-year operating lease with the Greater Manchester Pension Fund. Lettings and tenancies will be managed by Touchstone, which is owned by Places for People and manages 21,000 homes in the private rented sector.
Read-across: this could provide the template for other authorities to develop housing itself rather than selling land. Further development of the "build-to-rent" model. 

5 Dec Autumn Statement infrastructure commitments are largely pre-empted by announcement on National Infrastructure plan on 4 Dec (below) while the main emphasis is on housing. Overseas buyers will no longer be exempt from Capital Gains Tax on future gains from April 2015 and £1bn of loans are to be made available to unblock large development sites, including in Manchester and Leeds.
Readacross: The imposition of CGT may have only marginal effect on foreign investor demand in London and probably in second and third tier sites, rather than in Prime Central.  

Construction tender prices in London could rise 5 - 10% over next 18 months, according to a survey of major contractors by AECOM, FT. Major material and labour shortages are possible.
Read-across: reinforces threat of supply squeeze. BI believes forecast is conservative.  

4 Dec Six UK insurance groups pledge £25bn funding as part of a revived £375bn National Infrastructure Plan, FT. Legal & General, Aviva, Prudential, Standard Life, Friends Life and Scottish Widows will fund infrastructure, with projects yet to be named. Two years ago the government forecast that pension funds would provide £20bn, but only £1bn has been forthcoming.
Read-across: this appears to have more credibility than previous attempts to attract institutional funding and could help boost civil engineering workloads over the next three years.  

2 Dec Planning approvals in England rise by a third in the 12 months to September, reflecting changes in planning policy which the FT says favours developers if councils reject their plans. Data provided by Glenigan for the Home Builders Federation showed 167,000 plots were approved over the period. Taylor Wimpey recently reported that it had won 100% of its appeals this year.
Read-across: implies a significant pick up in housing starts over the next two to three years, but the increase may be significantly staggered.

28 Nov UK brickmakers to work through winter for the first time since the financial crisis to replenish stocks after years of plant closures, FT. Brick deliveries have shrunk from 2.4 million in 2007 to around 1.5 million, but increases in housebuilding, partly due to Help to Buy, and general construction recovery has led to shortages of not only bricks but bricklayers.
Read-across: this is as much to do with re-stocking as general increases in demand, and there appears to be a revival in interest in brick among architects working in other sectors. Further price rises are still likely, despite production hikes. 

26 Nov London Mayor Boris Johnson outlines plans to build 42,000 a year for the next two decades. The Draft London Housing Strategy proposes: up to 10 housing zones, with tax incentives and looser planning rules; plan for one-third of homes to be guaranteed as private rental at below-market rates for 10 years; government funding of £1bn a year from 2015 - 18; all land owned by Greater London Authority to be released by 2016; pressure on companies "land banking" including threat of compulsory purchase orders.
Read-across: bold plan, but question marks over delivery.

London Borough of Croydon grants planning consent for Hammerson and Westfield's £1bn, 1.5 m sq ft retail, leisure and restaurant development. This will include new public spaces, car parking and up to 600 new homes, including affordable housing. The planning approval is part of a wider 2 m sq ft plan to regenerate the town centre.

RWE shelves £4bn offshore wind generation array in Bristol Channel due to, it says, unforeseen geological issues.
25 Nov HS2 Bill will go before Parliament today, giving full details of the first phase of the fast rail route from London to Birmingham and its environmental impact, BBC. Ministers intend legislation to be passed before the General Election in 2015, but observers believe this may slip. The projected cost of the rail line is £43bn. Environmental measures include putting 55% of the link through tunnels or cuttings and planting thousands of trees along the route.

22 Nov Shadow Chancellor Ed Balls promises a Labour government would almost double last year's housebuilding output to 20,000 homes by 2020, The Construction Index. He tells the National House-Building Council that Labour would build new towns and set up a national infrastructure commission.

Major projects: High Speed 2 clears significant parliamentary hurdle and £790m funding package agreed for gigantic Battersea regeneration.

18 Nov Eight construction groups, including Sir Robert McAlpine, Carillion and Balfour Beatty have offered compensation of £1,000 to £100,000 to 3,000 union officials and other workers on a secret "blacklist", FT. The list, which was used by 40 of the industry's largest groups, was discovered by the Information Commissioner's Office in 2009.

The British Bankers  Association has warned Chancellor George Osborne that unless he spells out firmly how and when the Help to Buy housing support package will end, the scheme could cause serious distortion in the housing market, Telegraph

Amnesty International report alleges "alarming level of exploitation" of overseas construction workers, including inhuman working and living conditions, delays in pay and refusal to allow them to leave the country.
Read-across: possible reputational damage to companies involved in World Cup and other projects and potential delays, cost over-runs and contractual disputes.
15 Nov Conservative back benchers scupper new generation of garden cities, as proposed by PM David Cameron last year, FT.
Read-across: more evidence that repeated efforts by the government to boost housing supply face fierce opposition from grass-roots Conservatives.

Irish developer Tom Ryan intends to build Europe's tallest residential tower close to London's Canary Wharf, FT. At 242m, the 74-storey tower will be 7m higher than Canary Wharf's highest office tower.


Europe's tallest resi tower destined for Docklands

11 Nov Strong start to second phase (mortgage guarantee) of Help to Buy, according to banks (RBS and Halifax have received 2,384 mortgage applications since scheme was brought forward from January 2014 to October) and PM David Cameron, who says three quarters of acceptances are for first time buyers.

Council of Mortgage Lenders chairman Nigel Terrington speaks out against Help to Buy "addiction", Guardian. "It's important that Help to Buy doesn't morph into the US scheme, Fannie Mae [which provides federal government-backed mortgages to US home buyers]. It must be a temporary fix, not a permanent feature," Terrington, who is also Chief Executive of buy-to-let lender Paragon, told a London mortgage conference.
Readacross: indicates that lenders are nervous of what former CML Director General Michael Coogan has branded a "political initiative".

8 Nov HS2 rail contract so far running 11% over its £59m engineering design budget, Building.
Readacross: embarrassing for hugely significant project, but convinced over-runs will be reined in and that it is well and truly "live".

31 Oct Chancellor George Osborne may announce a capital gains tax on the sale of second homes in the UK that are owned by overseas investors in the Autumn Statement in December, according to the Telegraph. The policy, which Osborne refused to confirm in a BBC interview, would address concerns of a price bubble in the housing market around London and the South East. If introduced, it would also close a loophole that has allowed thousands of wealthy non–resident British expatriates to sell second properties in the UK without paying tax on their profits.ees with owner EDF. The 10-year construction project will create 25,000 construction jobs and companies already involved include Laing O'Rourke, Bouygues, Kier and Costain.

21 Oct Government announces go ahead for £16bn Hinkley Point C nuclear reactor, the first new generator to be built in Britain for 20 years, after agreeing a "strike price" and financial guarant

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