It's just the beginning

How far along the road to recovery are we?

Since we returned to work after Christmas I have sensed a notable change in atmosphere and confidence across the industry.

It seems like a number of organisations are making announcements to reduce their costs since they have returned after the break.

I suspect that during 2010 many companies were hanging on, waiting for the market to improve. Unfortunately that has not happened and is unlikely to happen in the near future. I would guess that when the Directors of these companies sat down and looked at cash in the bank and opportunities going forward, some fairly drastic measures had to be taken.

Consultancies would have looked at their costs and realised the only option is to cut resource to minimise outgoings. It is clear, from the fact that there are several small to medium sized construction businesses that have gone into administration since the New Year due to cash pressures and lack of future pipeline, that in some cases, this has not been enough.

I think this process will continue right through 2011 and beyond. I think the last two to three years and the forthcoming two to three years are likely to be the most significant in construction for at least a century. There are many theories of what the impact of this reduction in construction work will be, but I hope that something positive comes out of such a negative situation.

As an industry we can hopefully embrace this period and look to find more efficient ways of delivering buildings to the highest standard.

The Government is putting huge faith in the private sector to drive recovery and with construction being one of the most significant industries in the country, clearly we will all have our part to play in the economic recovery process.

2011 - A Challenge or an Opportunity

Christmas - traditionally a time of excess. Will it be the case in 2011?

As I recovered from the excesses of Christmas and New Year, reading the press and watching the news, I gradually felt myself slipping into a state of depression.

The media have jumped on the band wagon of how bad 2011 is going to be. The word ‘challenge’ has been used countless times with reference to the next 12 months. As increased fuel prices are coupled with the challenges of an economic downturn, it appears doom and gloom loom large for us.

This sentiment was reinforced even further with Tuesday’s VAT rise – another fantastic opportunity for the media to ram home how bad life is going to be for us all. This incessant drive from the media to convince the whole country that the future is going to be dreadful casts a huge cloud over everyone. So, taking all of this in over the festive period, it could have been for me easy to reflect and think how depressing the forthcoming year is going to be.

However, with this perspective Christmas 2011 is going to be a long way away and every week is going to feel like a month. For those who believe that the glass is half empty, this burden is going to wear heavy for a considerable time and I do worry for the mental health of the whole country as the recession continues to be sustained.

As we all returned to _space group, this week I, was keen to look at the positives of the current situation. Whilst undoubtedly, the environment is changing and there will be cuts in spending in some areas, this can also be considered as an opportunity. Certainly these changes are significant enough to force new thinking in the construction industry. Our clients need and expect large percentage savings off their capital expenditure and the increase in energy costs is forcing us to make our buildings perform better.

All of this will encourage our industry to look for new ways of delivering our services and improve the outputs from what has been an underperforming industry.

I was very keen to communicate this positive outlook to everyone across _space group when I returned so that we can start the year in the right frame of mind with the energy to take us through what will be a different 2011. With our eyes open to opportunity hopefully we can carry our business forward for many years to come, through investing in the future and thinking about innovation.

The Largest Change Management Programme Since Victorian Times

Paul Morrell - Chief Construction Advisor: Image from www.bco.org.uk

Paul Morrell has been at it again. As part of his role for the Department for Business, Innovation and Skills, he has issued a report which has looked at the implications to the construction industry of the low carbon challenge.

His report suggests that the industry faces the largest change management programme since Victorian times if it is to meet the low carbon agenda.

The report came from the Innovation and Growth Team (IGT) which is drawn from the construction industry and is asked by the government to consider how the construction sector could meet the low carbon agenda.

The Climate Change Act requires the UK to reduce its carbon account in 2050 to at least 80% lower than the 1990 base line.

Via the report, Paul Morrell has highlighted some of the good practice which is being carried out throughout the construction industry at present. There are some excellent projects where energy is right at the heart of the project. However, I believe that this is the exception far more than it is the rule.

In the past 12 to 18 months there has been a marked change in the approach to producing energy however, the continually disjointed nature of the process means that it is difficult to deliver efficient results.

Building regulations will continue to become increasingly onerous and our present methods of construction will make it increasingly challenging to achieve these stretching targets.

Over the past 10 years, the industry has proved that, even when there is plenty of work available, it is reluctant to invest in research and development. The industry shoots itself in the foot when times get tough in that it drives cost down without innovation.

Companies such as Laing O’Rourke have invested massively in research and development however, to continue this they need a considerable level of turnover. As part of the report there were some very nice platitudes from some Ministers stating how important the carbon issue would be to the construction industry.

I do not believe the industry will make this investment itself as it is naturally conservative and fearful of change, and the race for growth without investment is very raw to the industry at present following the spectacular demise of Connaught and Rok.

There is no incentive for the construction industry to invest in reducing energy and certainly if there is no commercial benefit to clients they are unlikely to invest themselves.

For us to get the significant improvements we need in energy performance, the Government needs to legislate to achieve these stretching targets. There will be kickback from the industry claiming the targets cannot be achieved however, this pressure will drive the industry to find ways to solve the problems.

Businesses who respond positively should be rewarded by the legislation and those who don’t should be penalised.

Unfortunately I do not have the answers to how this can be carried out but I do know that without it the industry will continue to progress as it always has done, with organisations continuing to undercut each other to win the next project.

BIM gets rolling

Over the past six weeks the term BIM (Building Information Modelling) has been used more than ever. At _space group, we have been tracking this technology for over 10 years and were converted a long time ago. The construction industry has now started to realise that there may be something in this new technology. The main driver for this change has been the adoption of the approach from client bodies. This includes the Government themselves, following several speeches from Paul Morell, the Government’s construction advisor, who is supporting BIM and confirming that it is the way all public buildings will be procured in the future. Other clients, such as Manchester City Council, have also stated that all future projects will be delivered using BIM.

Once large scale client bodies have made this jump, the rest of the industry will start to wake up to the need to use it, and hopefully, its potential.

Over recent weeks I have been involved in countless discussions, presentations and workshops with construction organisations who want to understand what BIM is all about. My starting point is always the same. BIM is not the answer to everything and there are some pieces of intelligent software available which do assist the process but there is still a need for experience and construction knowledge. The second point I make is that BIM is not only about training a team how to use sophisticated software but, I believe, is a complete cultural change within any organisation. Without decisions being made at the highest level of all businesses, BIM will not work. Procurement processes and contracts all need to be reviewed and re-aligned to this new integrated process.

We are only really at the start of our journey in the UK regarding BIM as several constructors start to realise the potential and need for this new approach. The architectural industry is still way off the pace and continues to fight against the technology. I believe much of this is fear and also arrogance in that many architectural businesses focus very much on the art rather than marketing needs.

The involvement by constructors has been really encouraging, however the understanding at board level still is a long way from delivery on site. Over the next few years we will see some major successes and failures utilising this approach however, I am absolutely convinced that BIM will be universally adopted across the industry and will deliver projects faster, cheaper and better.

Holiday Reading - T Dan Smith

T Dan Smith - One of Newcastle's great influences. Image from www.quazen.com

On my recent holiday, I read, as usual, a broad mix of biographies all generally aligned to the built environment or business in one way or another.

One of the most interesting books I read was the story of T Dan Smith, the infamous leader of Newcastle City Council through the 50s and 60s. T Dan Smith won infamy through his connection with the architect John Poulson, who was imprisoned because of his dealings with various public authorities – a fate that Smith shared because of his dealings with Poulson.

While I was aware of his story, I didn’t know the detail, which this book provides, and very much puts the facts onto the rumour, starting with his humble beginnings through to the end of his life in a flat in Shieldfield, Newcastle.

There is no doubt that T Dan Smith was a fantastic visionary and I do believe Newcastle continues to benefit from much of this vision. He was responsible for the design of the Civic Centre, the implementation of the strategy for the metro system, the central motorway and many more major projects across the city. This investment 50 years ago ensures that Newcastle continues to be a major city in the UK today.

This single minded vision is similar to that which Sir Howard Bernstein has delivered at Manchester. He was also an entrepreneur and built a successful business but unfortunately his linkages with Poulson would tarnish his fantastic vision for the city. The book suggests that actually he was innocent and in the end decided to give in to the media and courts and plead guilty.

I have always been a fan of T Dan Smith and his vision for the Newcastle, and whilst I believe he has left a fantastic architectural legacy, I feel that his greatest legacy is the fear within Local Government to take chances in case there are recriminations like the ones he faced. Unfortunately today’s Local Authorities do not have the kind of vision which T Dan Smith had and generally deliver a middle of the road solution to most things.

Many of the disasters in Newcastle’s city centre, such as several of the tower blocks, were not in fact T Dan’s vision but unfortunately he has been tarred with the brush of these over the years. Whilst I believe that he has left a legacy in the built form for the city unfortunately his lasting legacy is the lack of risk and vision in northern Local Authorities.

Wanted - 100,000 School Places

Students will have to work harder in overcrowded classrooms if changes aren't made - image from _space group.

Recent research has revealed that England is facing an acute shortage in the number of school places, with more than 1 in 10 pupils in the country in schools suffering from overcrowding.

The suggestion is that the government will need to build a total of more than 100,000 places at primary and secondary schools, at a cost of up to £2bn. 50,000 of these places are required just to alleviate overcrowding, while the other 50,000 are places that local government officials have estimated will be needed to prevent the spread of overcrowding.

This overcrowding is driven by attempts by Local Authorities to cope with the lack of good schools in their boundaries. Popular schools are being allowed to grow beyond their buildings’ limits, so that as many families as possible get a place at their first choice institution. This means that already full schools will be unable to expand to meet demand as pupil places continue to rise, and larger shares of children will need to take up places at less successful schools.

Not only could a lack of classrooms force schools to increase class sizes, it also threatens to undermine the government’s plans to boost competition in education, which appears to depend on spare capacity for children to move between schools.

Currently, more than ¾ million children, 12% of the total in Local Authority schools, are in buildings that are more than 4% over the capacity for which they were designed. Among these children, more than 250,000 are in schools that are 10% over the limits of their facilities, while over 60,000 are in schools that have 20% more students than their buildings are intended for.

Considering that the amount of four year olds is set to rise by 8% over the next two years, this issue will only get worse, and in order to prevent overcrowding, Local Authorities will need to find another 25,000 new primary school places, with similar numbers for secondary schools required by 2014/15.

These growth numbers will be problem for a new education secretary who is planning wide-ranging reforms. His reforms are intended to increase the competition among schools. However this relies on a margin of spare capacity and new link choices to be made.

Apparently the school places crunch is not evenly distributed with London suffering particularly badly. The previous government had identified indentified investment for Local Authorities facing the shortage of primary school places and Building Schools for the Future was intended to be the long term answer to this issue.

Obviously, there was a bit of political too-ing and fro-ing on this issue, however there can be no doubt that the overcrowding is increasing and that this is likely to be a political timebomb. Clearly, there needs to be a stand back in relation to education building provision and how this aligns with ambitions, policy and performance of schools.

Rob

The New Homeless

It is becoming increasingly apparent to me that we have a generation of new homeless people – young people in their 20s and 30s.

Actually, homeless may be too strong a word for them, and more appropriate is ‘houseless’.

This generation are either finding it very difficult to raise the funds to buy a property or have seen the down side of taking large loans and do not wish to get a foot on the property ladder. They even have their own term – KIPPERS, or Kids in parents’ pockets.

"KIPPERS" - it doesn't just refer to a fish

I seem to come across an increasing number of young people who in this situation, still living at home with their parents and desperate to move into a place of their own. Many of these young people have not saved money because this has not been something that they felt they needed to do in the times of excess. Now they need deposits of 20-25% to get a mortgage and their ability to raise this level of cash is difficult.

At _space group we have quite a few of our team within this age bracket and I am aware of a significant number of our people who are still at home with their parents, some in relationships finding it difficult to build a future together. There are even some who are starting families and still remain in separate properties.

The "KIPPERS" are ready to leave home, but can't get on the property market

Because of the need for such a large deposit, the private rental market has become attractive to a lot of KIPPERS, even though the products on the market are not great. At one end you have low quality, bedsit-type accommodation, and at the other, expensive riverside apartments. It is the more pragmatic accommodation in the middle which we seem to be without.

I know some RSLs have identified this and are trying to feed the market, but they themselves are suffering from funding challenges. I know recently of an RSL that put such properties on the market and there were huge waiting lists from people wanting the opportunity to rent, so it is clear that the demand is out there.

At _space group, we have developed a low cost house for the social housing market within our _spacehus brand. This is within the affordable window and also has minimal running costs. We have achieved this through offsite manufacture, which has allowed us to give each hus the highest quality in airtightness and insulation.

We are currently working on producing a £99,000 house, with running costs of £10 per week. While our buildings have low energy credentials, there is something else driving the project that we think is very important – by keeping the running costs low, the money the homeowner saves can be put towards paying the mortgage.

Our plan on the £99,000 house is to work on a 15% deposit with an 85% mortgage.

We are hoping to find a funder who will work with us who will help a whole generation own a home.

These £99,000 houses would even be appropriate for market rent if we can buy land at a realistic price. In the meantime, watch this _space!

Rob.