March of the makers? Hardly

More like the march of the ex-builders, plumbers, carpenters, electricians and roofers.

Today, it is the turn of the construction industry to enter centre stage and, as usual, these days, the news isn't good.

First, the ONS published its New Orders in the Construction Industry: 2nd quarter 2011. Unfortunately, there weren't many. New orders in the second quarter of 2011 fell by 16.3 per cent in comparison with the first quarter.

The total volume of all new orders is now at its lowest total since the third quarter of 1980.

New construction orders fell by 23.2 per cent, compared with the same period in 2010. Private industrial was the only sector that showed positive growth from the first to the second quarter (6.6 per cent).

New orders in construction have collapsed under the coalition. Here is the data in constant (2005) prices, seasonally adjusted in millions of pounds, showing the collapse of new orders from the second half of 2010 -- in other words, when the coalition took office.

2010
Q1 £13,376
Q2 £12,375
Q3 £11,503
Q4 £12,983

2011
Q1 £11,349
Q2 £9,502

Also, today, CIPS/Markit published their PMI for UK construction, which showed that rate of growth in construction continued to weaken in August. It was notable that employment levels and sub-contractor usage continued to fall during the latest survey period, which respondents linked to either lower workloads or expectations of weaker market demand

Sarah Bingham, economist at Markit and author of the UK construction PMI said:

August data signalled slower growth of both output and new orders as headwinds caused by uncertain economic conditions impacted on sector performance. Confidence regarding future business expectations weakened to an eight-month low, highlighting concerns in respect of further potential cuts in government spending, but also a dampening of wider business sentiment, which may act to reduce investment on construction projects. Another month of job cuts again reinforced lower confidence over future activity levels within the construction sector.

In my column this week, I worried that the march of the makers may become the march of the unemployed ex-makers. The march of the ex-builders, ex-plumbers, ex-carpenters, ex-electricians and ex-roofers appears to have already started.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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