Brickonomics

Figuring out trends in housing, construction and property


Why structural demographic challenges threaten house-building numbers

Brian Green

Much has been made of the latest English Housing Survey that shows homeownership among the young dwindling still further.

It’s a corker for the media. It has generated reams of copy in the press and numerous discussions on TV broadcasts and radio phone-ins.

But it ain’t news.

A bit like the “ageing population problem”, the decline in youngsters owning their own homes was evident decades ago if you cared to look at the statistics.

A favoured quip is that Margaret Thatcher created a generation of homeowners – just the one generation though.

In truth fast-rising homeownership easily pre-dates Thatcher. She did however cash-in on its popularity, promoted the trend and accelerated it by selling council housing.

Today many of those who rode the post-War tidal wave of swelling homeownership are surfing onto the sunbathed equity-rich shores of retirement. Sadly they leave behind them desperate would-like-to-be-homeowners splashing about deep in a trough waiting for the next wave to appear.

You might ask: Why was the media so slow to recognise this long-standing phenomenon? That would be pertinent. An obvious suggestion is that the middle classes have only recently felt a pinch felt many decades ago by poorer fellow citizens – those less active in political and media circles.

You might also reasonably ask: Why is the focus primarily on intergenerational fairness? Good question. There are serious intergenerational issue. They need addressing. But there are deeper structural problems beneath that are disguised by this shallow skim through the data. At least, I think there are. You may think differently.

Let me describe just one of these structural problems I feel are concerning.

The story starts with the top graph. It’s a favourite of mine. It shows for the past 40 years or so we have built one private new home for every 10 homes sold in the housing market in England and Wales as a whole.

Graphs on EHS 26 02 15What drives this is not fully clear, to me anyway. That’s why I like it so much. It tweaks my curiosity.

The link maybe in some way connected to planning. Maybe, as the graph seems to intimate, there is a connection to the collapse in social housing provision. Research is needed.

But it’s a remarkably strong and enduring link and as the market is currently structured it’s holding firm.

If we speculate that this link will continue to hold, there appear to be two options for boosting private sector house building.

We could discover what causes this link and break it favourably to boost the market share of new homes, or we could greatly promote more residential transactions.

Given we don’t really know what causes this link to hold (or at least I’ve not seen any solid explanation) it’s hard to know how to break it. So we’re left with finding ways to raise transactions.

Sadly, here, the English Housing Survey data hold bad news in the demographics. They point to things getting worse, because existing homeowners are likely on average to move less and they account for a major share of residential transactions.

The English House Survey and its predecessor the Survey of English Housing suggest that 60% of people that move into or within homeownership are previous homeowners. The second graph shows how this has been pretty consistent for some while. So the number of residential transactions is greatly influenced by the number of existing homeowners moving.

But why will they move less on average?

There’s the rub, the focus solely on the intergenerational unfairness and that young people are missing out on homeownership misses one important point. Older homeowners move much less than younger homeowners.

Let’s look at the stats and do some sums.

A quick analysis of the survey data on recent movers over recent history suggests you’re almost four times as likely to find a recent mover among householders under 45 years old than householders who are 45 and older.

Ok but why does this matter?

Compare 2000 with 2013. There were roughly the same number of homeowners in England and Wales. But on our figures (holding all other things than the age profile equal) the average likelihood of one moving was about 15% to 20% less in 2013 than in 2000.

This suggests a major source of residential transactions has shrunk fast (an underlying fall of about 10% in a decade) and was shrinking even as homeownership was rising.

From here the picture doesn’t get any brighter.

Low inflation will restrict house price rises, so the level of equity accumulation that promoted climbing the housing ladder among those in the generation now retiring may become a thing of the past. This suggests the propensity to move will be less among the young in the future.

Now I may be getting over concerned here, but my reading is that this (just one of a number of structural problems) will bear heavily down on transactions.

If that is so and the link between transactions and private house building remains stable we will, all other things equal, build fewer new private homes.

Talk all you like about demand being great and about a better planning system. The result would mean, as things stand, fewer homes built.

 

Rise in self-employment eases as construction employment prospects improve

Brian Green

The latest construction-sector labour market data is encouraging, if you are a worker that is.

The data show the level of employment at the end of last year was at its highest since 2009. Unemployed former construction workers are now as thin on the ground as they were in the best of times before the recession. And wages appear to be steadily improving. The earnings data suggest total average earnings within construction were up 3.6% on a year ago.

As we see there has been an increase in the “army” of construction workers (those employed and those unemployed, see third graph) over the past year or so. But the progress of rebuilding the construction workforce is slow. The 40,000 increase over 2014 probably owed more to renewing contacts and contracts with labour agents in Eastern Europe.

So with labour in short supply and demand rising. Things look bright for construction workers.

Jobs feb 2015No doubt employers hearing this “good news” may see it rather differently. They will see looming skills shortages and rising labour costs. They will see management headaches with increased uncertainty over both the cost and the availability of labour.

Naturally they’ll do what they can to reduce this, but what?

Well they will look to foreign shores and are already doing so.

But perhaps there’s a hint in the data of another strategy.

One of the more notable details of recent construction labour market data is the pick-up in direct employment and the easing in the growth of self-employment.

Now there are lots of possible explanations for this.

The rate of self-employment is driven by many factors: the desire or need of a firm or a worker for flexibility; redundant workers turning to self-employment while looking for full-time direct employment; uncertainty within firms over the skills needed or the work coming through in the medium term; the level of interest shown by HMRC over clamping down on abuse of the lower tax available through self-employment; and other host of other things.

But here’s a thought. Could the rise in direct employment and a slowdown in the rise in self-employment be a sign that firms are looking to reduce uncertainty? Are firms taking more workers on the books with the aim of controlling risk around labour availability and price shocks?

The data are limited and the time series not that long. But I charted the annual increase in total average earnings against the proportion of self-employed in the construction labour force (see bottom graph).

It’s a simple graph that does not account for other influencing factors. But it seems to suggest that on balance as pay rises increase the level of self-employment in construction eases.

So perhaps we should expect to see the balance between the self-employed and directly employed shift in coming months.

Reasons to be cautious over the latest construction output data

Brian Green

Last Friday the Office for National Statistics released final quarter data for construction output in 2014. It put growth for the year at 7.4%.

This, according to the official record, followed slightly anaemic growth in 2013 of 0.4%. The suggestion from these figures is that construction took off rapidly in 2014. 7.4% growth is pretty tasty.

But should we believe this version of recent history?

My advice would be no.

I suspect when the figures are settled later this year we will see a different pattern. Say growth anywhere up to 3% for 2013 and growth between say 4% and 6% for 2014.

This is not just a punt. There are good reasons to suspect this.

I can’t say I fully understand what’s going on, but clues can be found in tables 2a, 2b, 4 and 9a of the associated reference tables for the November and December data.

So, here’s my take.

Table 9a shows the implied output price indicator – a series of coefficients that are there to show the difference between the data unadjusted for inflation and data adjusted for inflation (tables 4 and 2b). This important adjustment means we can assess the industry output both in cash terms and equivalent volume terms.

TheImplied output price indicators graph graph shows the path of the indicator published in the latest release (for December) compared with the path in the release published a month earlier.

We see a strange dislocation in the latest data. Rather than the data suggesting a steady pattern of inflation we have a sudden drop to apparent lower inflation in January 2014. This clearly isn’t how inflation works, unless for instance there’s a sales tax increase or the like. Even then it’s unlikely to be that stark a jump.

Look then at the revisions to table 2b (the non-seasonally adjusted volume measure). Almost £2 billion has been added to the period January to November 2013 in the latest release compared with the previous. The upward revisions to table 4 (the non-seasonally adjusted current-price/cash measure) is just £384 million, if my maths is correct.

What is more significant in this argument is that there have been no upward revisions to the data for 2013 or earlier.

The upshot is that statistical changes to 2014 data have raised the estimated level of work done. But no revisions have been made to 2013.

So, why the revisions?

There are two possible explanations that pop into my mind for a major change in the implied output price indicator. Firstly there has been a change in the estimate of the inflation rate applied to construction output. Second there has been a change in the structure of the data that has shifted the implied inflation.

But why were revisions made to 2014 and not 2013, leaving an uncomfortable jump in the data in January?

The reason here is likely to be that the 2013 data is fixed, because it is tied to the national accounts (The Blue Book, which I understand to be locked until June).

This would mean adjustments can be made to the 2014 data as more and better information is available, but this new information cannot be applied to 2013 until the Blue Book is reopened.

The trouble is we now have an apparent bizarre set of numbers. The suspicion is that the inflation adjustment (real or implied) fixed into the 2013 data is too high.

What does this mean?

If we were to assume the data will eventually run smoothly across the two years (let’s assume the implied inflation comes in closer to the dotted red line in the graph) the effect would be to raise the constant price output figure for 2013. All other things being equal, this would do two things. Growth in 2013 would rise while growth in 2014 would fall.

Ultimately we end up at the same place, it’s just the route is a little smoother.

So why does it matter?

The truth is for most people it isn’t going matter a jot. But for people who analyse how the industry is performing it has profound implications. We rely on history to provide a clue as to what is happening and what we might reasonably expect to happen in the future.

The statistics are vital tools to help plan better and set policy better. Well that’s the theory, one to which I subscribe.

Construction’s daunting challenge: Find one million new recruits in a decade

Brian Green

Construction will see faster employment growth than any other of the six major business sectors, according to projections by UK Commission for Employment and Skills.

Between 2012 and 2022 the average annual rate of expansion in the construction workforce is put at 1.4%. That compares with 0.6% for the economy as a whole (see top graph).

UKCES 1Even when you look at the economy divided more finely into 22 sectors, construction still comes out third, after information technology and electricity and gas.

One startling figure in the wealth of data published in this research is the implied need for construction to find more than one million new recruits in the 10 years from 2012 to 2022. A daunting challenge.

But, for me, the mind-blowing figure in the whole array of data is that, with the steady decline in skilled trades in manufacturing and other sectors expected to continue, more than half of all new skilled trades jobs created in the UK between 2012 and 2022 are projected to be in construction.

That should place construction central in the minds of careers advisers. If a youngster is looking for a solid skilled trade for a career, construction is the first port of call.

The scale of growth presented by the UKCES projections amplifies the message from the recently released by CITB’s Construction Skills Network that the industry needs to recruit heavily.

The assumptions, base years, definitions of construction and the methodologies used will differ between the two studies. But, while UKCES takes the narrow definition of construction, its projections are more dramatic than those of the CITB. The UKCES projection implying a need for an average of 100,000 new faces a year between 2012 and 2022 compares with CITB’s latest forecast of an annual recruitment rate of just shy of 45,000 between 2015 and 2019.

One part of this difference may be explained by the horrendous demographic bubble in the age profile of the current crop of construction workers. There’s a high proportion moving into their 50s which suggests a likely acceleration in retirements over the next 10 years.

Looked at from the point of view of those considering a career in construction, an industry offering jobs for 100,000 new faces over the next decade is fantastic news.

You’d think this would be cause for celebration. And it should be.

Sadly looked at from a wider perspective it just adds more worry to an industry wondering how to cope with expanding demand. A major reason why the projected growth in construction jobs is so high is that so much of the workforce was lost to the recession.

The other issue, put bluntly, is that the cost to train a million new people from scratch would come in not far shy of £30 billion. That’s a £3 billion annual bill before you add in the cost of ongoing training of the existing workforce.

Both sets of projections underline the massive task ahead rebuilding the construction workforce. And there’s little hope of finding slack to call upon from among unemployed former construction workers. Those numbers are back to pre-recession levels.

The latest construction survey by RICS, the surveyors’ body, shows skills shortages at their worst since the boom years before the recession. Furthermore, RICS conducted some research that led to the rather apocalyptic headline “Will 2019 be the year that the UK stops building?” on its website. Apparently the research showed firms turning down work at a disturbing pace through lack of resources.

The truth is, as a nation, we screwed up in the recession, allowing a strategic industry to atrophy and blindfolding ourselves to the obvious need to have the industry at near full throttle when the recession eased. I say “we”, but I really mean the folk that administer this country.

But for all the mess that the industry must manage in the short term, projections suggesting strong job opportunities in the industry should be welcomed. It must be seen as an opportunity, a base on which to rebuild the industry for the future.

The data stem from the UKCES Working Futures programme (see The Future of Work report published in February 2014). Clearly, whether you accept the numbers or not, they make for interesting reading.

The projections suggest the construction industry will employ in 2022 more people than at any time since 1990. But the biggest growth rates will be in management and technical occupations rather than in the more traditional skills.

The implication is that the profile of the construction workforce will steadily become a more white collar industry. The second graph shows the expected shifts in the proportions of occupational types in construction between 1992, when many of today’s main crop of construction folk were building a career, and 2022.

UKCES 3However, the biggest task for the industry in terms of sheer number will be in recruiting and training skilled trades. The UKCES projections suggest it needs to find about 461,000 in the period 2012 to 2022.

There will be on these projections proportionately two thirds more senior managers and professionals, two thirds more in sales and customer services and about 40% more associate professional and technical staff. Administration and elementary skills meanwhile will have shrunk by about 40%, plant operatives will decline by about 20% relatively.

Importantly the projections suggest that the proportion of skilled trades will remain broadly similar. This will remain the core of the industry continuing to represent more than half the industry workforce.

The shift is expected to be mirrored in the educational background of those within the industry. From 14% with education rated above A-level in 1992 the proportion was put at 21% in 2012 and is expected to rise to 30% by 2022. The numbers with higher degrees and doctorates is expected to more than double.

Boiled down, to make this scale of transformation within the industry, the implication is that newcomers to construction are expected to be on average far more highly educated.

Perhaps depressingly, especially given the reshaping in the roles expected within the industry, the UKCES projections don’t see the proportion of females rising in any meaningful way.

UKCES 2However, this is partly because of the proportionate fall in administrative and secretarial jobs. Women’s faces will continue to become more present in more senior roles, although by 2022 the projections suggest they will still be fewer than one in five.

The data also allows us to explore where the rise is likely to happen. Here one needs to be a bit cautious because of the fickle nature of construction demand regionally. The third graph shows how across all regions the expansion of the construction workforce is projected to easily outstrip employment growth within the economy as a whole.

Clearly the challenge to find one million new recruits will be a daunting one across the nation. But the more pressing challenge is for the industry to turn this pressing threat into an opportunity to build a better industry for the future.

Here, I feel, the Government rather owes the construction industry major support if it truly is wedded to having a long-term economic plan.

 

Bright prospects ahead for construction. That’s the forecasters’ view

Brian Green

UK construction by 2018 will have witnessed a five-year growth spurt not seen since the 1980s. That’s what is suggested by the majority verdict among the latest batch of industry forecasts.

Taking Construction Products Association forecast numbers, from 2013 to 2018 the industry output will have expanded by a quarter. Only in the post-War era up to the 1960s and in the late 1980s did construction enjoy growth of that magnitude over a five-year period.

This will, if it happens, put huge stress on the depression-depleted resources of an industry already looking to imports of materials and labour to cope with rising demand. Which is, perhaps ironically, one of the risk to the growth forecast.

This resurgence in construction since the start of 2013 has been down largely to fast expanding housing work, especially new build. In the seven quarters 2013 Q1 to 2014 Q3 new housing output rose by 40%. Much of this will be down to the boost from Help to Buy. There has been a longer term upswing since the darkest days of recession, which has seen the new housing output rise 80% since 2009 Q3.

The majority view among the forecasters is that growth in house building will remain strong this year, but ease in 2016. In terms of the value of output this will see all new house-building work rise above its 2007 peak this year.

Forecasts feb 2015The majority view is that all other sectors will grow over the next two to three years. But there is, among the four forecasts covered here, a dissenter from the full-steam-ahead view of the future. The Hewes forecast, which tends to take on board more of the downside risks, suggests solid growth this year, but a dip into recession in 2016. It expects most new-work sectors to flag.

Hewes takes the view that house building, the big driver of recent growth, will falter in 2016. It expresses concern about a downturn in the cyclical commercial market and does not share the other forecasters’ optimism that the talk of more infrastructure work will convert to a boost to actual construction output.

Its view on direct public sector spending on construction is similarly much bleaker than the other forecasts.

Set against the three other forecasts which appear fairly consistently positive in outlook, the view presented in the Hewes forecast appears very downbeat. But it is worth noting there is considerable divergence in views over each of the construction sectors.

This is perhaps most evident in the infrastructure sector where Experian expects an expansion of more than 40% compared with CPA at 30%, Leading Edge at 15% and a drop of 5% in the Hewes forecast.

Certainly the infrastructure sector is giving forecasters the biggest headache at the moment. There is much talk of work in the pipeline, but the uncertainty over the work is high.

The good news on uncertainty is that the downside risks look less worrying, despite yet another saga of confusion over what will happen in the Eurozone following the Greek elections. But as mentioned earlier, supply constraints may act as a dampener.

Importantly the UK economy does seem to have found a firmer footing since 2012. Then, in the face of flagging growth, the Government appears to have eased on austerity (despite rhetoric to the contrary) and it also pumped money into the system through Funding for Lending. This in turn supported Help to Buy. This boosted mortgage approvals and consequently house building rose to meet the expanded demand.

The overall effect of these policy tweaks seems to have been to turn an extremely dismal economic performance over the previous two years into something more solid.

History and the data suggest it is solid economic growth that pumps life into construction. For my money this does support the view that construction will see growth, unless the economy is hit by a nasty shock.

One other factor that supports economic growth and suggests a bolstered underlying demand for construction is the expansion in the population.

It’s hard to quantify the specific level of demand for construction created by a growing population, but why not let’s try to get a handle on the scale?

Let’s assume each extra person needs the same share of the built environment as those already here. On current figures that comes in at about £80,000.

(The ONS put a replacement value in 2013 on the total stock of UK built environment that is in use at about £5.2 trillion. That’s the gross capital stock figure. The net capital stock, which takes into account that some of it is well worn, came to about £3 trillion. That means there was in 2013 about £47,000 worth of built environment per person, which would cost about £80,000 to replace.)

The population is growing at between 400,000 and 500,000 a year at present, according to ONS estimates.

To meet that increase on our assumptions would take investment of £30 billion to £40 billion. That’s about a quarter to a third of the current investment in the built environment.

Back in the 1990s the population was growing annually by between 130,000 and 210,000. In very round figures this suggests investing between £10 billion and £20 billion a year to provide for population growth.

Boiling it all down the industry needs to be about £20 billion or so bigger than in the 1990s just to accommodate a faster growing population. Add in the backlog of work left as the industry shrank during the recession and there’s a hint at potential demand.

Naturally the relationship between the built environment stock and the population is not linear. On one hand we use buildings more efficiently, reducing the demand. On the other hand we want better buildings and more space so we need to spend proportionately more. In all that there’s the muddle of what buildings and structures we actually need to match the type of society and economy we want and how much we are prepared to invest.

But it’s worth noting the ONS estimate of the replacement value of the built environment has doubled in proportion the population since the 1970s.

The key message from that crude data doodling is there’s potentially very strong underlying demand for more buildings.

Not least among them would be more houses.

The big question, as always, is who will invest and how much to do what?

Déjà vu, predictability and the challenge to fill the construction skills gap

Brian Green

UK construction needs 44,690 new recruits a year for the next four years at least, says CITB following its Construction Skills Network research.

Last year it put the estimated annual recruitment requirement at 36,400. The year before, it estimated 29,050. The pressure seems to be growing.

Set this against the 7,280 apprentices completing in England in 2013 and the picture looks really rather depressing.

It’s hard not to be maddened by the inevitability of this rapidly growing workforce problem. I’ve found plenty of reasons to blog (not least here) on the predictable roadmap to a skills crisis for more than two years.

So what now?

From where the industry stands now there’s little hope of turning out enough suitably qualified construction workers to fill the expected skills gap in the short term. That is without a major plan leading to a scale of state interventions not seen since the early post-War years. I’ll not hold my breath.

The pool of ready-made unemployed construction workers is as small as it was during the boom, so little hope there.

There’s a chance older workers already in employment may hang on a bit longer. They seem to be. But that just buys a bit of time unless the industry finds new ways to employ those who find the physical side getting too much.

There’s hope that, with a more attractive outlook, former construction workers who found work elsewhere might be tempted back into the industry. And there may be some with similar skills in industries in decline that fancy moving into construction.

The attraction would become more significant if pay in construction rises rapidly as a result of the shortages. Tempting such people will help. It must be tried. But I doubt it’s a complete solution.

The industry could look to reducing its labour input. That pretty much means prefabrication to the lay person or modern methods of construction (MMC) as it’s described within business. You’d expect labour productivity to go up, as well as overtime. But major changes tend to happen gradually in construction.

So what’s left? Well the labour agents of Poland, Portugal, Latvia, Lithuania and Hungary, among others, will be once again licking their lips in anticipation of a bonanza.

OK, the irony doesn’t escape me either that prominent among the tattoos on the skin of this Government were “economic competence” and “get tough with immigration”.

But what do we have?

Such a massive hole in the construction workforce would have been avoided had more direct public investment in house building, schools and other essential infrastructure been forthcoming. I’ll not rerun the case for weighting public capital investment towards downturns, but simply say these things we desperately need for our future prosperity could have been bought more cost effectively by the nation when the private sector was in decline and Government borrowing rates were negligible, if not negative.

So what realistic short-term option will construction firms find to fill the hole in their labour force?

More migrant construction workers.

Surely this is not a situation this Government would have willingly chosen. But it is the predictable result of its choices.

Now I know it’s a cliché, but where’s the long-term joined-up thinking?

It’s desperately needed as the construction industry, no doubt with a sense of deja vu, navigates its way once again up the slope from a deep recession.

Perhaps of more immediate importance is the need to avoid silly short-term knee-jerk policies.

Am I asking too much?

Immigration tops the nation’s concerns according to Ipsos Mori’s “The Most Important Issues Facing Britain Today” poll in December.

Will vote chasing politicians in vote chasing season steer us towards tighter immigration controls?

If they do that really would leave the construction industry facing serious problems, both in the short and the long term.

What do we need more: people to build buildings or people to deal in them?

Brian Green

Here’s a question posed by the labour market figures: Why since the recession hit do we have more dealers in buildings and fewer people building them?

From the heady pre-recession days there seems to have been a 17% expansion in employment among dealers in buildings while employment among builders of buildings has shrunk 20%?

That seems to be what the employment data tables in the ONS labour market data release tell us.

Despite talk of a strong revival in construction, the 5% growth in real estate jobs over the year to last September overshadows the 2.5% growth in construction jobs.

To horny-handed sons of toil in construction all this will seem like a very strange way to rebalance the economy. It will seem a bizarre way to solve the housing crisis. It will seem fantastically inefficient. Indeed from all angles it will seem plain wrong and in need of some convincing explanation.

In fairness you can shrink the apparent problem by choosing different statistics. No this is not about lies damn lies and statistics. It’s just measuring a squidgy moving target is a lot more complicated than some people think.

The figures don’t look so bad if you examine the ONS preferred measure of short-term employment trends, the workforce jobs data. They show a drop of 11% for construction and a rise of 9% for real estate activities.

For my money the workforce jobs data may be better for most industries, but the fragmented itinerant nature of construction and its high level of self-employment present real problems in collecting and scaling the survey data. So the reality may be much worse than these data suggest and far closer to the bleaker picture painted by the employment data provided by the Labour Force Survey. But that’s a guess.

One advantage of the workforce jobs numbers is that they can also be broken regionally.

Estate agentsLooking at the data that way does however torpedo any hope of finding an explanation in a quirk in regional distribution. It’s not just a London and South East thing. In all regions bar Yorkshire and Humberside real estate jobs are in greater numbers than at the pre-recession peak.

(That said the data does reveal one very peculiar oddity. The biggest percentage growth in real estate jobs, by some margin, is in Wales. Don’t ask me to explain that one.)

As for construction jobs, there are far fewer in all regions bar London and the South West. Think wealth and the migration of wealth and you might find and explanation for that pattern.

There is of course another obvious suspect when we scour for an explanation for the phenomenal rise in estate agents – the rise of buy to let and private renting.

If you care to look at the numbers, cast them how you will, but the rise and fall in buy-to-let mortgages corresponds very neatly with the growth rate of real estate jobs.

That’s alright then, problem solved, we can explain why there are more estate agents jobs.

Well hang on. That’s not the real question.

The real question is whether it is more efficient to employ people in what is mainly transactional affairs rather than in productive affairs.

That I will leave to some clever politician or economist who can explain to me, and I suspect a rather perplexed construction industry, why in the face of a shortage it is imperative we increase the numbers of people allocating resources rather than the numbers creating them.

How old is the average construction worker?

Brian Green

A figure keeps cropping up that suggests the average age of a construction worker is in the 50s and the industry is getting older by the day.

That makes for a good scare story. But is it true?

The story came up again in a construction economics meeting I was at last week. One anecdote suggested the faces on site looked 10 years older than 10 years ago.

Could this be real, the effects of recession-related stress on hard-working construction folk making them look older, or perhaps a cognitive bias (for instance a form of recognition bias where we notice and remember people of our own type more than others)?

Let’s not forget also that the population is aging generally, so you might expect an industry to reflect this.

So what is the answer?

It’s not all that easy, because industries and occupations change and are reclassified so the data are not always that easily compared. Also not all construction trades work in construction and not all people that work in construction work on sites.

We can get construction-related occupations from the census. For simplicity I took “skilled construction and building trades” for 2001 and 2011.

I also happened to be in the British Library last week and hurriedly checked the 1951 census. I only had time to take the numbers by age for males categorised as “workers in building and contracting” and “painters and decorators”. This should provide a reasonable sample for illustrating the spread of ages within construction, although you might rightly argue that it may be biased towards younger people because the specification of skilled isn’t there and female workers were ignored.

I fiddled a bit with the age bands making simple assumptions to reallocate people to fit a consistent set of age bands for the three periods. This will not have made much difference to the general shape.

Older workersThe results (top graphs) show a reasonably similar pattern for each of the census years. The cumulative total by age shows that in 2011 as in 2001 and 1951 about 75% of construction workforce is younger than 52.

My estimate of the average age for construction workers is 41 years old in 1951, 38 years old in 2001 and 42 years old in 2011.

It’s probably risen a bit since then, but I’m not sure what data was used to provide an average age above 50.

The second graph is interesting and helps explain why you might sensibly think the average age of a construction worker has risen by 10 years over the past 10 years.

It shows that the peak age of construction workers has moved on by a decade. If we take the mode rather than the mean, the average has risen by about 10 years. 10 years ago when you visited a site the most common age would be in the 30s today it’s the 40s. So the reason you might think the typical construction workers is 10 years older is because it’s true.

But what’s happened since 2011 and what data might illustrate the shift in and out of the recession.

The third graph splits people by industry rather than occupation, but broadly it’s measuring a very similar group.

If we split the age bands into the core of 25 to 50 age group and those younger and older, the change does not look that worrying on this presentation. Comparing the near peak of June 2007 with June 2014 we see the changes are not that dramatic. The vast majority are still younger than 50.

Presented this way you might conclude that the problem has been overstated and it’s true that some of the figures pumped out do lean towards the apocalyptic.

But that would ignore the very severe threat on the horizon. This can be seen when we look again at the modal shift. Or, put another way, where the biggest group of workers sits on their construction working-life conveyor belts.

The overall age distribution for each of the 2001 and 2011 census years suggests that large numbers of workers leave the industry in their 50s. In 2001 the most common age for construction workers was between 30 and 40 years old, so there was plenty of working life in construction left in that group. In 2011 it was between 40 and 50 years old and that was four years ago.

If the pattern of the past continues plenty of these workers are now leaving the industry and we should expect the numbers retiring from construction to rise very rapidly unless ways are found to encourage them to stay on.

If ways are not found to retain older workers, they will have to be replaced in increasing numbers by new recruits if the industry is to avoid losing talent at an increasingly alarming rate.

Given that the industry lost about 400,000 workers during the recession, the task of rebuilding numbers will be tough enough without having to fill a gaping hole left by growing numbers of retirees.

This suggests that the industry should, if it is in anyway sensible, be looking not only to recruit more workers but also to find ways of usefully exploiting the talents of older employees.

George, if you are dredging dodgy policy ideas from old blogs, get the timing right

Brian Green

“20% discount on your first home announces PM” reads the press release headline describing one of David Cameron and George Osborne’s latest moves to keep their mitts on the tiller of power.

Ostensibly it’s a new bold initiative to give a leg up to 100,000 wannabe first-time buyers. Desirable, you might think.

In reality we all know it’s yet another policy aimed at a key but unsettled element of the electorate to ease fears about their potential or the potential of their children to own a home. Devious, you might conclude.

It also smacks of recognition by Osborne that the housing numbers might not look quite as rosy as he’d like in the run up to voting. Worrying, I might suggest.

The plan has been wrapped up as part of a scheme to change planning rules in a way that will “unlock” more “under-used” or “unviable” brownfield land. The new homes will also have to meet a high bar on housing design. Now all that’ll be cheap.

Somehow it’s also linked to hardworking young (perhaps flatteringly defined as under 40 years old) people and the Government’s long-term economic plan.

The scheme, it appears, will mean 100,000 new homeowners being given a theoretical bunce of say £20,000 or so in housing equity they can’t release until a few years down the line. So boiling it down and tearing away the tinsel it might look to the more cynical like a £2 billion piece of Yuletide pre-electoral bribery.

I have to take a more generous view. I’m obliged to. I suggested a not dissimilar scheme in 2009 when house building was in freefall. It wasn’t as complicated, but I don’t have endless time to concoct marketing-friendly public policy. I suggested a more modest 20,000 “deserving” first-time buyers be given £10,000 to buy a new home. I admit it was a slightly flippant blog, but one that I hoped at the time contained a grain of an idea to provoke sensible thinking.

There is of course one major difference between this latest policy initiative and the idea outlined in the blog. Five years. Timing is all.

When I suggested the idea it could have preserved construction jobs, reduced unemployment and kept the fabric of the house building supply chain more intact.

I estimated then it would save the Treasury £20,000 a home sold despite paying out a £10,000 gift.

As seems so worryingly clear to me after penning the previous two blogs, the timing of this policy is like so many of Coalition creations in the housing market. They seem to arrive after the train has left the station. This rather suggests this Government recognises far too late where it should have been heading.

Anyway George, in case you or your advisors are reading this blog here’s a free policy idea for the Budget to support hardworking families and plumbers. 50% discount on kitchen sinks for everyone in marginal seats.

What have we come to?

 

ps I’m rubbish on keeping to house style, but I expect more craft from Government press release writers. So please be consistent with whether it’s hardworking or hard-working.

Restructuring stamp duty should provide a boost to housing, interesting timing don’t you think?

Brian Green

So the Chancellor’s big idea was a reform of the stamp duty land tax.

Excellent.

Certainly few people with an appreciation of either taxation systems or the housing market think SDLT is a good tax.

The Mirrlees Review: A proposal for systematic tax reform, a highly-regarded document in tax circles, had this to say for it: “There is no sound case for maintaining stamp duty and we believe that it should be abolished.” It recommended it be replaced by a land tax.

However, earlier in its discussion of SDLT the review did say: “The ‘slab’ rate structure … is especially perverse, meaning that transactions of very similar value are discouraged to completely different degrees and creating enormous incentives to keep prices just below the relevant thresholds.”

It is that “slab” bit that the Chancellor has seen to, leading to much joy, especially, I’m sure, among estate agents.

The various likely effects of George Osborne’s restructuring of SDLT can be read, to some extent. The overall effect is much harder to compute fully.

One potential effect is flagged up in the Mirrlees review. It suggests that “removing it would create windfall gains for existing owners, as it will largely have been capitalized into property values”. So those who are looking to sell a home currently priced in a range where the tax take would fall will probably raise their asking price and make gains on the sale. This might cause a spurt in prices at particular price points.

Meanwhile, buyers are also likely to share in the gain. They, after all, have to find the cash to pay for the duty in a lump sum. This can be prohibitive, as they also seek to build up a deposit and look for cash to cover the other fees needed to buy a home. So the change in the SDLT structure should create a boost to sales, again differently at different price points, but especially among first-time buyers with limited equity. The Chancellor’s change should increase demand and transactions, at least in the short term.

This surge in transactions should also be supported as sellers seeking a price just above a threshold in the old SDLT rate will now find buyers more willing to accept that price rather than seek to push it below the threshold. This should mean more acceptable offers and more deals done.

So, broadly speaking, we should expect to see dotted at points along the price band (up to £1 million) more transactions and slight spikes in house price inflation.

Looking at the new-build sector we should expect a large cheer from house builders, as they capitalise some of the SDLT reductions into selling prices and see a jump in interest from buyers (especially first-time buyers).

transactions and completionsWe might also expect to see subtle changes to the new housing mix, as builders pitch homes into the market more freely around what were awkward price points around the SDLT thresholds.

Importantly where the SDLT take is set to fall is where most action takes place in the market. This should help to increase the overall level of transactions.

And, just as more points mean more prizes, more transactions should mean more new homes built. As we can see from the top graph, this has been the case for the past 40 years or so.

So a lot of relatively positive things should happen in the short term in the price ranges below about £1 million, at which point the tax increases for all sales (see lower graph taken from the HM Treasury Autumn Statement 2014). Naturally the effects of the restructuring will vary regionally.

SDLT new vs oldWith all tax changes there are short and long-term effects and they can be very different. Ultimately, the change in SDLT will increasingly seep into house prices and land prices where it is reduced and be sucked out of house prices and land prices where the tax take is increased.

But a word of caution, SDLT is still a rubbish tax, although slightly better without its slab structure. A land tax would be a more reasonable, fairer and economically efficient option and, in theory at least, would do more to stabilise house prices.

The net result of this move by the Chancellor may be to make it easier in the short term to step on the housing ladder, but lead to higher house prices in the long run. This would increase the gaps between the rungs of the ladder, making it harder to climb.

There is, of course, one other issue to chew on. Why has this change been made now as a last throw before the election?

This tax has been a potential drag on housing transactions and house building for a long while. Certainly it has been a greater drag than normal through the nearly five years of George Osborne’s tenure as Chancellor, when the problems faced by first-time buyers trying to raise enough cash to buy into housing have been severe enough for him to introduce incentives such as Help to Buy to reduce the burden.

Interestingly the restructuring of SDLT should, as we discussed above, give the market and house building a short-term boost, neatly ahead of next May’s election.

Surely, as a servant of the public, the Chancellor cares more for the long-term housing needs of the nation than his short-term appeal ahead of the polls?

Or is there something I’m not getting about politics?

 
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