This chapter examines the housing and construction challenges currently facing London – challenges that could be mitigated by the wholesale adoption of MMC by London’s housebuilders. We also consider workforce factors that are likely to worsen the situation.
London needs to step up housebuilding. In order to meet the targets set by the Mayor’s draft New London Plan, the capital needs to deliver at least 65,000 new homes a year across London from 2019. 2
Disparity between housing need and housing supply is worsening the capital’s affordability crisis. In the last two decades from 1997 to 2016 the number of jobs in London has grown by 40 per cent and the number of people by 25 per cent, but the number of homes has grown by only 15 per cent. 3 Most of the need is for housing that is affordable to Londoners on modest wages, and recent research estimates that 58 per cent of need is for homes costing less than £450 per square foot. 4 However, only 6,863 affordable homes were delivered in the year to end March 2018 (though starts rose sharply). 5
Planning is also running ahead of construction. In 2014 permission was granted for nearly 55,000 homes in London, but in 2017 fewer than 30,000 homes had been built or were under construction – an attrition rate of 46 per cent. 6 The independent review for central government into the gap between planning permissions and construction (led by Sir Oliver Letwin) argues that the rate at which newly constructed homes are believed to be sellable into the local market without distributing the market price – known as the “absorption rate” – is fundamental to build-out rates. 7 In order to accelerate the slow rate of housebuilding on major sites in the capital, Sir Oliver’s interim report recommended that developers on large sites build a mix of tenures – including more affordable homes and a wider range of home types and sizes – to enable faster absorption. 8
Furthermore, many of the houses that are being built are of unsatisfactory quality. A recent customer satisfaction survey carried out by the Home Builders Federation (HBF) and the National House Building Council (NHBC) found that 93 per cent of homebuyers report snags or larger defects to their housebuilder after moving in – and of these, 35 per cent report 11 or more problems. 9 Recent news coverage has shined a light on the concerns of homeowners and has highlighted common complaints about workmanship, including issues with masonry, unfinished fittings and faults with utilities. 10 Many housebuilders blame workforce challenges for the increasingly poor quality of new house builds.
A recent survey found that 58 per cent of all supplier and contractor respondents said skills shortages contributed to the poor quality of workmanship in the construction industry. 11
Financial and environmental costs
The current construction model is costly. Despite a slowdown in London construction price inflation, the capital still ranks as the fifth most expensive place to build globally, with skills shortages identified as the principal driver of high costs. 12
Traditional construction is also a significant—but often overlooked—contributor to poor air quality, with severe environmental and health impacts. The London Atmospheric Emissions Inventory has identified construction sites as responsible for approximately 7.5 per cent of nitrogen oxide (NOx) emissions, 8 per cent of large particle emissions (PM10), and 14.5 per cent of emissions of fine particles (PM2.5) – the vast majority of which originate from diesel vehicles and machinery 13. Research by King’s College London found that in 2010 there were the equivalent of 9,500 premature deaths across London associated with the two pollutants of most concern – PM2.5 and nitrogen dioxide (NO2). 14
Converging workforce pressures mean that construction in the capital faces a growing skills shortage and lacks the capacity to increase housing supply as fast as is needed. Skills shortages resulting from an ageing workforce are being exacerbated by the lack of new workers entering the profession. Reduced migration resulting from Brexit would be a compounding factor.
Skilled workforce shortage
The construction industry is struggling to attract and retain the workers required to alleviate its skills shortage, and ultimately deliver the quality and quantity of houses that London requires.
To meet London’s housing demand, a capable and available workforce is needed. In many on-site occupations, demand outstrips levels of current employment. Recent findings by the GLA indicate that across the whole of Greater London, the construction occupations facing the greatest skills shortage are all on-site trades, namely plant mechanics, scaffolders and bricklayers. According to their calculations, demand in all three occupational areas in 2017 exceeded 300 per cent of 2015 employment levels. 15
In its interim report, the Letwin Review found that most bricklayers in the construction industry are already employed on housebuilding projects, raising questions of how build-out rates can be increased using current construction methods. Furthermore, the tightening of the construction skills market – characterised by a growing skills shortage and increasing cost of contracting labour – is a key driver behind build-cost inflation in the capital. 16
Retirement and departure
The strength of London’s construction industry is being further weakened by an ageing workforce – 12 per cent of London’s construction workers are due to retire in the next ten years. 17 In 2017 twice as many workers left the construction industry as joined it (see Figure 1), and this ratio is projected to worsen over the next few years. 18
The skills shortage associated with the industry’s ageing workforce is likely to be compounded by a reduction in the number of migrant workers in the capital, as the UK prepares its departure from the European Union (EU). This is a particularly acute challenge for London: EU nationals account for 33 per cent of the construction of buildings workforce, compared to only 10 per cent in the rest of the UK. 19 Of greater concern is that a disproportionate number of London’s skilled on-site workers are from overseas, including 70 per cent of carpenters. 20
Low take-up of construction apprenticeships
To meet these challenges, London’s construction industry will require a pipeline of younger, skilled employees. Despite the introduction of the Apprenticeship Levy in April 2017, there are growing concerns that government initiatives are failing to encourage the scale of construction apprenticeship starts necessary to prevent a growing skills shortage. London is a consistently low-performing region in England for apprenticeship starts in the construction sector 21 and has a wide gap in gender participation, particularly at levels of advanced skill, with no women taking a high-level apprenticeship in construction in the capital in 2015/16. 15 The number of apprenticeship starts in construction, planning and the built environment in the capital has declined by almost 50 per cent in the five years to 2016 (see Figure 2), even as need has intensified. 23
Recent research by the Construction Industry Training Board (CITB) found that 34 per cent of apprenticeship leavers surveyed cited low pay in the construction industry as a reason for choosing to leave the sector, in addition to 34 per cent feeling that career development would be too slow. 24
Retrofitting existing homes via traditional construction will take up capacity
To make matters worse, London’s housing stock is ageing, and in coming years its repair and upkeep will place yet more demand on the skills of the traditional construction workforce. Fifty-five per cent of London’s homes were built before World War Two. 25 The evidence base for the Mayor’s Housing Strategy estimates the total cost of meeting the basic repair costs to be £6 billion, with £4.6 billion of this to be spent on homes built before the end of World War Two. 26 Older homes require more repair and maintenance than new build properties; repair and maintenance of properties in Greater London accounted for over a quarter of output in the construction industry in the year to mid-2018. 27
London’s need for a step change in housing delivery is at its highest for decades, but there are both systemic and workforce challenges to meet. Current construction models are often criticised for their environmental impact and build quality. They are not easily able to accelerate delivery in current market conditions, and in any case, a shortage of workers with the necessary skills is likely to limit any attempts to do so. The next chapter considers how modern methods of construction can help meet these challenges.