Being in the construction industry is an endless battle between pleasing the client and facing the external challenges. The last year has been strange for everyone, yet the sector has still ploughed on. As we now approach the end of the last round of lockdown restrictions (hopefully), let’s have a look at the challenges in the construction industry in 2021.
1. Covid-19 pandemic housing boom
Over 70% of construction businesses in the UK experienced a decrease in turnover during the Covid-19 pandemic. A similar number also had to completely cease operations in the same period, with planned projects cancelled or postponed, and the availability of goods and services being diminished.
However, especially in the period of the third national lockdown, the pandemic has also seen other opportunities arise for a struggling sector. The stay-at-home orders issued throughout the course of the Covid-19 pandemic has led to increased consumer spending on home improvements and larger houses. While this is fantastic news for house builders, they are also finding themselves battling for fresh supplies.
This has led to a strained supply chain, with UK factories struggling to cope with demand. One builder’s merchant faced an eight-month wait for roofing materials, as opposed to the usual three. Naturally, this means builders are not able to complete projects as timely as they’d like to, with the Builders Merchants Federation (BMF) expressing concerns on the number of houses that the UK is able to build.
2. Material shortages
Material shortages is a continuing challenge and the Construction Leadership Council (CLC) has warned the industry that it’ll only worsen. As of the beginning of 2021, 71% of contractors face material shortages – with lumber, steel and lighting being most-cited. The production of timber is not enough to meet global demand. This is a situation exacerbated in the UK, with other countries willing to pay more. This pushes us down the pecking order.
It is not only the pandemic causing materials shortage, but the ongoing disruption in the time since the UK has left the European Union (EU). The movement of goods, and people, was a big talking point of the hugely drawn out Brexit negotiations. In January, EU imports fell by a record £6.7 billion, only increasing by £1.2 billion in the following month – a very weak recovery. Aecom says that if this were to continue there would be further disruption and higher prices until alternative sources of supply are found.
This means, now more than ever, UK firms need to be really concerned about how they manage their projects and supply chains. Keeping up with the very latest news in the industry will help them mitigate any issues that may arise. Having the right software in place, such as EasyBuild, and having the most up to date data will go a long way in being able to counteract future supply shortages. Having access to the latest information helps to make justified decisions as to when to order new materials.
3. UK government targets net zero by 2050
The UK government is looking to deliver an “infrastructure revolution”. As such it’s pressing ahead with its initiative to bring all greenhouse gas emissions to net zero by 2050. It is looking to transform the construction industry to become more productive, more sustainable and more internationally competitive – with an emphasis on using data and more modern methods. Only two years in, there are already calls for the government to provide more support and funding for the sector.
This is a huge problem for the construction industry – given that it accounts for 45% of total carbon emissions in the UK. Any given project can have a huge environmental impact. The site, tools, machinery and equipment all require a lot of energy. Heavy vehicles and machines also contribute massively to consumption. All this leads to a huge carbon footprint for the construction industry. We’ve put together a helpful guide to help your construction firm become more sustainable and improve corporate social responsibility (CSR).
Adopting the use of ERP software and just-in-time (JIT) technology, means managers are able to only order stock when it’s needed. This avoids unnecessary excess waste.
4. Skills shortage in construction
It’s been one of the ever-present challenges in the construction industry for years. The skills shortage that we are now faced with has created a number of implications for firms and projects, including;
- Longer project time
- Hiring difficulties
- Increased wage demands
- Threats to the UK’s net zero goals
Even, perhaps the largest ongoing construction jobs in the UK, HS2 is struggling. The government minister for the project now investigating skill shortage concerns. This is an issue that you will see commonplace in firms across the country – both small and large. So what is causing this issue?
22% of employees in construction are within the 51-60 age range. Worries by industry representatives are that workers are entering retirement, leading to a significant loss of skills among the workforce – without anybody else coming in to plug the gaps.
Another concern is that the sector may be missing out on fresher perspectives that other industries, with a younger workforce, have. This has led to a stagnation in innovation and ideas that may help the construction industry’s future. As such, The Chartered Institute of Building (CIOB) is now working with a number of organisations and the Department of Education to focus on the 14-19 age group – “those making career choices”.
Construction employment at lowest level since 2013
Data from the Office for National Statistics (ONS) found that construction employment is at the lowest level since 2013 – with 2.17 million people making up the workforce between July and September 2020. Much of this has been attributed to the ongoing pandemic so, with restrictions steadily being lifted, we can hope to see a gradual return to pre-Covid levels. However, the question remains, will the revived workforce be as skilled as it was before?
5. VAT reverse charge
After a couple of delays (first in October 2019 and then again in October 2020) the VAT reverse charge finally came into effect on 1st March 2021. It’s the most significant change to construction regulations in VAT since value added tax was introduced back in 1971. The reverse charge has completely changed the buying and selling of services in the construction industry.
The new regulations mean that customers are able to charge themselves VAT and pay it directly to HM Revenue and Customs (HMRC), as opposed to the supplier sending them an invoice. The reverse charge has been put in place to prevent suppliers from avoiding paying the HMRC (missing trader fraud).
However, it has not only provided a real headache for those in accounting, but put a huge strain on the cash flow of SMEs who act as suppliers. This is because they won’t receive any VAT from customers yet will still have to pay it on whatever they purchase – a seemingly unfair model. Coupled with the rising material costs as a result of Brexit, this damages the bottom line of many SMEs.
You can find out more about the VAT reverse charge, and what you can do to adjust your practices in our blog. EasyBuild’s construction solution for accounting is specifically designed by UK experts. It will help you stay on track of your important financial data – ensuring your compliment with the very latest legislation.
These have been just a few of the challenges in the construction industry today. As time goes on some will alleviate while others worsen. The industry will always have to be prepared for new challenges. An industry without the ability to adapt and change the way it carries out its practices will always struggle in the face of upcoming issues.
As it stands, the biggest threat to the industry is the continuing materials shortage as a result of Brexit and the Covid-19 pandemic. Perhaps the timing of the two served as the perfect storm for supply chain issues. This would suggest that the issues are temporary and, over time, will alleviate. Yet, for now, firms are really having to concentrate on their supply and put an emphasis on stock, and cost, control.
When looking to the future, the industry will have to implement more ‘green’ practices and solutions as the country heads towards its target of net zero emissions. The skills shortage will continue to linger, with campaigns in place encouraging the younger generation to engage with construction.
EasyBuild Construction Software helps modern construction businesses overcome challenges within the industry. Whether you’re looking for help with finance, commercial or project management, we’ve got the solution for you.
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