Silver linings

Rapid national and international political change formed the backdrop for the latest meeting of the RIBA/NBS Economic Panel. A firming of the UK’s economic prospects over the next year or two also informed discussions as the seven experts (see below) considered the outlook for the UK construction industry and the architecture profession.

The triggering of article 50 was no surprise. The calling of a general election was, but apart from a short hiatus on signing new public sector contracts, it is unlikely it will change the overall picture. A Conservative majority government look likely to lead us out of the EU. The details of Brexit remain, however, ‘tbc’.

The construction sector

The economic data suggests things are more stable than they looked last year. The Bank of England has revised its forecast upwards, now suggesting UK GDP growth of 2.0% in 2017, and 1.75% in 2018 and 2019. No recession, but inflation is likely to rise.

The construction sector continues to grow modestly, well above the levels expected immediately after the Brexit decision. GB construction was over 2% higher in January 2017 than in January 2016.

Broadly, the panel felt that we could expect to see the construction sector continuing to grow.

How well architects can capitalise on the modest growth partly depends on what sectors they operate in.

• There is likely to be continued modest growth for private housing as house prices and major housebuilders continue to be sustained by Government’s Help to Buy scheme. The exception to this is the niche of central London prime residential, which continues to be dogged by an oversupply and falling prices.
• Infrastructure looks like becoming the strong performer in the next few years. The UK infrastructure pipeline of projects has a current value of £300 billion.
• The commercial sector is likely to contract a little over the next couple of years. This is partly because of the long-term trend towards online shopping, but also because the financial sector is hedging its bets away from London. Nevertheless, there is notable investment from tech and media firms, such as Facebook and Google.
• Education looks set for growth, partly spurred by the Priority School Building Programme. Higher education work continues apace, though the panel noted how dependent this work is on the flow of overseas students (and their fees) from the EU and beyond.

Looking regionally, the North is on the up, particularly Manchester, Leeds and Birmingham. Are we seeing ‘north-shoring’ gathering momentum, where lower property and employment costs encourage companies to move significant parts of their operations out of the capital?

Skills and the movement of workers

We may have growth, but the availability of skilled workers is of concern. Without transition arrangements in place before we leave the EU, there may be construction work to do, but not enough skilled people to do it.

For the architectural profession there are similar issues: 20-25% of architects working in the UK are non-UK EU qualified. It is an even higher proportion in London. In some large practices, half the workforce is from the EU.

Practices are already feeling the effects of the referendum result. The panel described practices reporting that overseas staff feel unwelcome in the UK and unsure of their future legal status. There is already a reduction in EU applicants for positions.

Along with the medical and pharmaceutical professions, architects share ‘protection of title’. It is part of how the profession is regulated. Through an EU directive, architects are bound by a very specific piece of legislation. If the application of that legislation falls away, we could lose mutual recognition within the EU.

This matters not just for staffing levels, though that is significant, but also for the quality of design work. Research carried out by the RIBA revealed that a diversity of architects leads to innovation and stronger design ability. For example, Eastern European designers are particularly technically adept, while those from Spain tend to have strong conceptual design skills. Uniting a variety of skills from across Europe and the world is part of what makes British architecture so successful.

If the agreement with Europe leads to the loss of architects, the effects are difficult to judge. We could see an architectural ‘brain drain’ from the North to London; we could see a rise in architectural fees; or we could see the balance of payment for architectural services reverse, as clients look to architects overseas to carry out the work that needs doing.

Or, if the government reaches a favourable agreement, or an extensive transition arrangement, things could carry on as they are.

In any case, the panel stressed the attractiveness of the UK as a place to practise. Relative to many countries, its wages are high. English, the global language of business, is a draw. The quality of UK architecture has an enviable world standing.

Productivity and investment

But what if the UK does not get the kind of deal that allows the current levels of professional movement? What other effects might there be? The panel drew out the importance of productivity to the future of construction and architecture.

Is the investment we need to increase productivity not happening because of the ease of drawing in workers, at whatever level? An analogy: in the 1980s and 90s there were many car-wash machines. They were mostly user operated, by a coin, code or token. You drove your car into them, and they cleaned your car.

Then labour become less expensive and more readily available. We began to pay for people to wash our cars more often, not the machines. Lower labour costs made capital investment less attractive. It became more profitable to employ people on relatively low wages than to invest in buying and maintaining a machine. Car washing has become less productive, in that it is now more labour intensive.

Might we see the return of the car-wash machines if freedom of movement is restricted? And for the construction industry, might we see the higher levels of capital investment to increase the productivity of the design and construction process?

By investing more, in both capital and people, we will not need as many people; but those we do have will have more highly developed, more specialist, skills. Might we also see a needed increase in fee income? Is the EU currently a suppressant to earnings?

We are already seeing significant productivity gains with the adoption of digital ways of working (including BIM). In the future, we can expect developments in offsite construction, the alignment of the manufacturing and construction processes, and the improvement of building performance through ‘in-use’ data influencing future design.

Increased investment (in off-site manufacture, for example) needs a certainty of future demand, however. Some suggested that there are areas of construction where the government could help by assuring a steady flow of future work. We need more houses, schools and hospitals. This time of uncertainty is a good time for the government to build; a practical intervention to help the economy.

The panel stressed that while we are in uncertain times, there are also opportunities. The EU is a significant export market for architectural services, but others are more so. The Middle East, for example, accounts for 38% of overseas work.

UK architects are adept at responding to change innovatively, and will do so through the Brexit process and settlement. Who knows, we may even find fees rising.

The panel were:

• Sue Foxley, research director at ThinkBarn
• Noble Francis, economics director, Construction Products Association
• Simon Rawlinson, head of strategic research and insight, Arcadis UK
• Vince Nacey, partner, Mirza Nacey
• Adrian Dobson, RIBA, executive director of members
• Lucy Carmichael, RIBA, director of practice
• Adrian Malleson, head of research, NBS

---