Next up: recession and its aftermath

Experts are back. Bringing together architects and economists, the RIBA convened an experts’ panel to get a picture (through a glass, darkly) of what is upon us with the coronavirus pandemic, and what may be coming.

First off, the economy; it is in deep recession now, but the recovery will come, and it may be rapid.

Bank of England’s Lai Wah Co talked through the Bank’s illustrative scenario (and, given the current levels of uncertainty, it’s a scenario rather than a forecast). The stand-out figure is the UK economy shrinking by over a quarter in the first half of this year.

During the lockdown, whole areas of economic activity have stopped, so GDP has fallen dramatically. But the Bank’s scenario also shows a UK economy picking up quickly in the second half of this year, though taking some time to recover to its previous growth trajectory. The Bank’s scenario is a V-shaped recovery, the kind of recovery we are starting to see in China.

The panel noted, however, that the path of recovery is very uncertain. It could happen at different speeds and take different shapes. We hope for the rapid V shape, but may see something slower – more a tick shape (of the sort we’ve seen in previous recessions). Should a second wave of infection descend, a W shape may emerge as we recover, fall back as Covid-19 takes hold again, then recover again.

Although construction has not had a complete shutdown, it is undergoing exceptionally rapid contraction. Early anecdotal estimates for April suggest up to 85% of housing sector activity has been lost, along with 80% of commercial work. Contractors may have furloughed around 40% of their staff, and the major housebuilders somewhere between 70% to 80%. Construction sales and investment are significantly reduced this quarter. The supply of construction materials, particularly for those reliant on closed builders’ merchants, has been interrupted, hampering on-site work.

But as we move out of lockdown, and sites re-open, the recovery may begin. In principle the loss of construction output activity can be made up; sites can be opened for longer, overtime worked. We may see a spike in construction activity in the next couple of months. However, on-site social distancing is likely to significantly reduce the productivity of sites, so construction will take longer and cost more – and who is going to pay that bill?.

Given the visibility of site work, it is natural that much of the government’s attention has been focused on getting them re-opened and working again. But there are longer-term challenges. Once the stalled existing work is complete, where will new work come from? This is the big question now, and is why a funded recovery plan for construction is so important. We need a long-term focus. This may be the opportunity to address some of the long-standing challenges the industry faces. We can get going on digitisation, offsite manufacture, addressing skills shortages, and de-carbonising the built environment.

The Covid-19 crisis, more than any other recession, has made us ask ourselves about how we lived before the contraction, how we are living now, and how we want to live after. The future demand for buildings and places will depend on the future form our lives take, on the communities we choose to create and grow. With this sense of change coming, the panel discussed different sectors and how radically they might be affected.

Offices

Temporarily we have changed how we work. For many, home has stopped being a private personal space; instead, within days it has, for many, transformed into to a place of work, education, socialising and even healthcare. Our previous broad world has shrunk to a screen in a room. It has suddenly become very easy to imagine a different future, one where the main place we work, collaborate and share is virtual. A person’s proximity to a physical place of work is starting to look much less important. Will offices be needed? Will London and other UK cities lose their primacy? Will we start to address the climate emergency by just staying in?

The rapid transition to home working has been implemented impressively, with many architects (already leaders in digitisation), rapidly adapting to virtual collaborative design. But there are real dangers. Home is not a safe place for everyone. There is rising concern of the mental health of home-workers deteriorating as lockdown continues. Many are feeling increasingly isolated and alone. Those who seem so resilient in the office may not be in isolation. Architecture is often a collective activity, and that sense of being part of a collective is built up through the day to day of being together. For more see Brian Green’s analysis.

Housing

While there may be a rush for home to office conversions and extensions, the housing sector faces a challenging time ahead. With rising unemployment and income insecurity coming, consumer confidence is likely to take a hit this year. That may well translate into a reticence to carry out extensive home improvement work, depress property prices and so weigh down on new housebuilding. At the same time, this crisis has thrown existing problems into relief. UK housing is in short supply, many families live in insecure rented accommodation, young people are finding it difficult to buy their first home, Universal Credit (which more people will come to rely on) often doesn’t fully cover rent.

Now more than ever, publicly funded housing is needed, at levels we haven’t seen for decades.

City/town centres

As online shopping has risen, many town centres have, in part, reimagined themselves as destinations; places you go not just to shop, but to socialise, to eat, drink and take part in cultural activity. It may be a while before people can again spend their time in such social ways. Buildings that support culture and hospitality have an uncertain time ahead and with more working from home, office space may become increasingly vacant; what then for our town and city centres?

Repurpose our towns and cites through the conversion of existing building stock into housing, so addressing the housing crisis? This sounds promising; living in centres will reduce dependence on motorised transport and re-purpose our towns and cities. But again, care is needed. The rush for growth may translate into a rush for de-regulation. We have already seen the dangers of insufficient regulation of office conversions through Permitted Development Rights. Permitted developments have resulted in poor quality homes. The key workers we are clapping now need affordable decent homes, not undersized apartments with insufficient light and ventilation.

Clients

The panel closed with some remarks about future work and clients in contrast to the gloomy near term economics, architects spoke of clients willing to work in partnership through the crisis, of working together to find imaginative responses to the Covid-19 situation. Going back where we began, the Bank of England’s response has been to make money very cheap to get, through quantitative easing and an unprecedentedly low interest rate. In turn, this means the margins needed by clients for construction projects is lower than ever before.

Let’s end on a positive note, and put aside a contracted global recession; this could go one of two ways. Either way, we are likely to see change. If society radically changes, we’ll need new and repurposed buildings to accommodate it; architects are uniquely placed to resolve the design challenges new ways of living will create. And if we go back to how we were before, then we can expect, after a hiatus in 2020, growth in architectural work to resume.

Read more on architecture and the coronavirus.

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Panel members:

Tim Bailey, partner and architect, Xsite

Lai Wah Co, deputy agent for Greater London, Bank of England

Professor Noble Francis, economics director, Construction Products Association (CPA)

Brian Green, analyst and commentator, Brickonomics

David Green, director, Belsize Architects

Emily Rae MA FCA, finance partner, Fletcher Priest Architects

Lucy Carmichael, director of practice, RIBA

Adrian Dobson, executive director, RIBA

Adrian Malleson, head of economic research, RIBA (chair)