CC Jul-Aug 2020

INDUSTRYfocus
Leveraging change
Kenny Ingram at IFS believes that housebuilders should see Covid-19's disruption of the housing
market as an opportunity to adapt to a rapidly evolving sector of the construction industry
The Covid-19 pandemic has caused
house sales to slow dramatically in
many countries, forcing
housebuilders worldwide to take stock
now to ensure their future success. As
countries come out of lockdown housing
sales volumes will obviously start to pick
up again, but how long will it be before
they return to pre-Covid-19 levels, and
will house prices recover from the slump
or fall further? What, if anything, can
housebuilders do to manage this
disruption and uncertainty?
STIMULATING THE MARKET
Governments everywhere are doing all
they can to stimulate markets by
lowering interest rates, reducing taxes or
honing stamp duty charges. The impact
of these changes is unpredictable.
Potential house buyers are also nervous
about making big commitments and
taking on loans alongside concerns
about employment security and the risk
that house prices may fall further.
There is a global shortage of housing
however, so there is a need in most
countries to build more houses - and
Concrete form work using prefabricated sections
build them faster. This housing shortage
is heavily skewed towards lower price
bands with affordable housing a major
issue in many countries. This has driven
an acceleration of the 'Build to Rent'
market in countries like the UK.
Incomes have grown at a much slower
rate than house prices in the last past
decade, so even before the Covid-19
crisis many countries were seeing
pressure on prices, and the market was
overdue a correction. There is also a
strong likelihood that housebuilder
margins will be squeezed in the
short/medium term and that future
market conditions will not be as
favourable as they have been over the
last 10 years.
The truth is that no one knows what will
happen to the market over the next few
months and years. As a result,
housebuilders need to be agile and able
to change direction very quickly. The
good news is that many housebuilders
have made large profits over the last few
years-so they are in a strong position to
be able use this cash now to invest in
making their businesses future proof.
LABOUR SHORTAGE IMPLICATIONS
The construction industry has been facing
a major skills shortage in many countries.
The industry struggles to attract the
younger generation and as a result we
have an aging workforce issue which
continues to grow. Labour shortages
result in increased labour rates, leading to
companies employing more unskilled
and/or inexperienced people who will be
much less productive, thereby forcing up
construction costs and build quality will go
down. It also constrains the capacity of
the industry to build more homes.
In the short-term, as housing demand
has slowed because of the Covid-19
crisis, some homebuilders and
subcontractors have chosen to cut their
headcount, But that kind of reaction could
be a mistake, as they may not be able to
rehire these skilled resources when
demand returns, leaving them with an
even more acute labour shortage. How
will we build more homes if the labour
capacity is not available?
Poor quality, in the form of large
numbers of defects, is also damaging
many housebuilder's brand reputation.
This has a huge impact on costs, as large
amounts are being spent on correction
work, making the labour shortage even
worse. O&M performance consultant Peter
Furst says that costs resulting from poor
craftsmanship across the construction
industry as a whole are as high as 12
percent of a total project cost, and
consume 11 percent of its project hours.
When we talk about productivity there is a
tendency to focus on site-based
construction processes, but it is also critical
that management tasks and processes are
executed in an efficient way. There is
usually a productivity and project control
issue here as well. Most housebuilders are
running their business with outdated and
non-integrated business systems, with
tools like Excel spreadsheets certainly
14
July/August 2020