Politics In the UK, the construction industry has a close relationship with the Government.

. It is regulated by the Secretary of State for the Department of Environment, Transport and the Regions (DETR). Prime Minister David Camerons coalition of Conservatives and Liberal Democrats is using homebuilding to stimulate the economy (Spillane, 2012). The depth of public spending cuts made by Government policies and changes in the planning laws, both directly have an impact in the construction sector (Ruddick, 2012). o Government social building programmes (i.e. Building Schools for the Future) and public-private partnerships are taken to stand-by. o A reduction in planning approvals is expected o The Chancellor's March Budget included policies designed to drive housebuilding and construction, such as a 250m shared-equity scheme for first-time buyers and a change to the planning system that will allow offices to be converted into homes without permission. o The Housing Revenue Account is in need of reform and the annual centralised subsidy system is to be replaced with a locally-run system by local authorities. The need for an adequate supply of good quality new homes is a recurring theme of Government policy, e.g. Sustainable Communities Plan and the Housing Green Paper (ODPM, 2005). o The 2007 Housing Green Paper set out the governments ambitious plan for new housing with targets of 2 million new homes by 2016 and 3 million by 2020 (Cho, 2010). However, a shortage of buyers in the current market conditions is impeding progress. The UK Government seeks to boost homebuilding industry: o by reducing down payments for new homes to 5% percent and four years of stingy credit, by providing a guarantee, joined by the government and homebuilders. More mortgages will be provided by banks (Spillane, 2012).

o by announcing the release of public sector land to encourage new homes to be built (Maer, 2011) o by encouraging local authorities to build more affordable houses. o by reviewing the process of planning applications for housebuilders, as it is lengthy and costly Loans for house purchases in the UK surged to 58,610 in January 2012. The sharp increase has been driven by more loans to borrowers with small deposits, with more first time buyers being given access to high loan to value (LTV) mortgages by lenders. In June 2010 Government announced that the standard rate of VAT would be increased from 17.5% to 20%, which causes an increase in raw materials for the construction industry. However, the construction of new buildings is charged a zero rate of VAT if those houses, dwellings and buildings have a charitable purpose (Seely, 2011). Restrictions on Housing Benefit awards produces the construction industry should be developed outside London to satisfy the demand of people coming from inner-London. Changes to social housing rent and tenure, by increasing social rents to pay for new

house-building. This is likely to add significantly to the already exponential rise of the costs of Housing Benefit (IPPR, 2011). Government policy reforms stamp duty land tax rules applied to bulk purchases may encourage firms to invest in residential property (Maer, 2011). In recent years, the focus of planning policy has moved away from new development on greenfield sites towards the redevelopment of brownfield sites

The political commitment adopted by the Government, as well as the recent economic recessions are affecting the policies associated with the construction industry. This industry plays a key role within UKs economy, and is positioned as a booster of the whole economy. Although the Government adopted a public expenditure cut position, policies are being changed or adopted to promote the construction industry. The planning system is being reviewed, while local authorities are being encouraged to promote affordable houses and to release public sector land to encourage new homes to be built. The government is working with banks towards improving mortgages systems, especially for first time buyers, and taxation has been reformed to encourage firms to invest in residential property. Furthermore, construction policies are taking into account the environmental issues, promoting green houses and moving towards the redevelopment of brownfield sites.

Economy The housing and construction industry is a leading indicator of the state of the economy. The contribution of the construction industry towards the global GDP revolves around 9% of the total amount (EconomyWatch, 2010) and represents the 10% of UKs GDP (KnightFrank, 2011). o 1 spent on construction output generates a total of 2.84 in total economic activity (i.e. GDP increase) Construction employment is particularly significant to many regional and local economies

The Gross Domestic Product (GDP) in the United Kingdom declined 0.2 percent in the fourth quarter of 2011 over the previous quarter (BBC, 2012). o 0.9% fall in manufacturing sector, 4.1% drop in electricity and gas production, 0.5% fall in construction sector Real GDP per capita fell by more than 4% between 200809 and 200910

In December 2011, the UK unemployment rate reached 2.67 million people, 8.4% of economically active population (BBC, 2012). o Rising unemployment rate tends to discourage people from buying new homes, having a negative impact on the housing market. Unemployment affects mortgage payment and mortgage rates

In 2011, 6.7% of the total number of workforce jobs corresponded to the construction industry in UK, which has remained relatively constant over the last

decade (Maer, 2011). However, it has decreased 0,7% after the global recession. o a significant proportion of construction employees (>60%) are low-skilled labourers with relatively limited alternative employment opportunities o there is a large diversity of small construction businesses and a few large companies. In 2010, 85% of private sector construction businesses with paid workers had fewer than 10 workers. Output in the construction industry fell faster than GDP of the economy as a whole during the recession. Although it recovered, it has been falling due to the current situation. The output in this industry is particularly volatile, especially in relation to the performance of the economy (Maer, 2011).

Figure 1: House building starts in UK

The number of private enterprise of house building starts fell by over 70% from 2007 (Maer, 2011). UK government investment has played an important role in growing the UKs capital stock: o government investment in construction has historically focused on infrastructure, education, housing and health , and historically represented 30-40% of construction demand. o Cuts in public expenditure are suppressing the supply of public sector projects and continue to constrain UK GDP growth overall (Blackburn, 2012).

There is a high degree of competitionConstruction work is performed under time and cost constraints imposed by a system of competitive bidding and a practice of awarding contracts to the lowest bidder. Increasingly uncertain economic outlook, the cutbacks in government's capital spending programme and a continued lack of finance for development projects are affecting the development of new projects (PropertyWire, 2011). o The situation of the Eurozone is promoting uncertainty and dampens confidence in the private sector making investors more risk averse.

The rate of Consumer Prices Index (CPI) inflation in the UK fell from 4.2% to 3.6% in

January 2012 (BBC, 2012) o Bank of England's inflation target of 2% for 2012. o Higher rates of inflation tend to discourage investment. Building costs throughout 2011 rose steadily and although theyre expected to stabilise during 2012 inflationary pressures are nevertheless set to remain as labour wage strains and competitive labour forces continue to affect input costs. Interest rates have been low in recent years, averaging around 4.5%, which has made property more affordable, and positively contributing to demand. o The Bank of England has decided to leave interest rates unchanged at 0.5% to boost the UK's economy (BBC, 2012). o Construction is often financed by borrowing or using savings, therefore interest rates are an important determinant of investment. Increased materials prices will persist as intensive demand in East Asian countries particularly China and 2011s natural disasters continue to push commodity prices upwards. Metal and ores prices have all witnessed increases, with the price of copper rising by over 20% in 2011. Aggregates and steel prices also remain high, driven again by demand in developing economies, despite increases in global supplies (Blackburn, 2012). o The direction of the UKs economy will determine if these costs could be passed onto consumers or the industry should expect lower profitability. o The euro exchange rate affects directly the costs of building materials, as 60 65% of both imports and exports of building materials are with the Eurozone countries. During the year to December average house prices decreased in Wales (-1.6 per cent), Scotland (-4.6 per cent) and Northern Ireland (-8.1 per cent). However, there was an increase of 0.5 per cent in England (ONS, 2012). o Prices dipped towards the end of 2010, causing rental prices to increase. o House prices in London have increased to pre financial crisis levels and there has also been rapid growth in rental values across the capital.

o Luxury property prices have risen during the last year, as it is occurring a shift among investors into property. This appears to be the retreat to safe haven bricks and mortar while the worlds stock markets are affected and is uncertainty within the Eurozone (SAPropertyNews, 2012)
per cent England Wales Scotland N.Ireland

20 10 0 -10 -20

Figure 2: House price rates of change in UK (ONS, 2012)

-30

JFM AMJ JASONDJFM AMJ JASONDJFM AMJ JASONDJFMAMJ JASOND 2008 2009 2010 2011

The value of land in the UK holds a potential of 250 and 350% returns on its investment. o Value of residential building lands within UK has been increasing during the last 20 years (VOA, 2011). There is a trend of the construction industry to increase their assets in landbanks.

The construction industry contributes to nearly 10% of the global and UKs GDP. During and after the last economic recession, UKs GDP has declined, and it has not fully recovered yet. Unemployment is rising, which is negatively contributing to the house building industry as it discourages people to buy new homes, affecting mortgage payment and mortgage rates. Furthermore, the public expenditure cuts forced the Government to reduce its direct investment in social housing and public sector projects, while promoting private investments. The general economic situation made interest rates decreased to historic levels, while inflation continues rising. In addition, the uncertainty in the Eurozone economy and the euro exchange rate, plus the intensive demand in East Asian countries are pushing building materials prices up. House prices also have been increasing, and investors are shifting investments into property as stock markets are uncertain. In addition, there is a high demand for land, as it has potential investment returns as it is expected to fully recover the economy through the construction industry contribution.

Society World population growth rate is 1.092% annually (WorldBank, 2012) o The UK population is projected to increase by 4.9 million to 67.2 million over the 10 year period to 2020. This increase is equivalent to an average annual rate of growth of 0.8 per cent (ONS, 2012b). Death and birth rates have declined over the past several decades. People are living longer in both industrial and developing countries.

Changes in social trends and the average number of people living in a household affect the demand for housing (Goodier & Pan, 2010). o Marriage has become less of an economic necessity for women, increasing material independence and ability to form separate households. Womens economic independence has also contributed to the marked increased in divorce rates over the last four decades. The preference for later marriages had led to an increase in the number of single households, and to a rise in the demand for flats and apartments. Houses account for 82% of dwelling stock in England, while the split between houses and flats in new-build in recent years has presented a trend towards equilibrium, reaching 50/50 2008/2009

UK follows the same direction as population in developed countries. Its size and structure are changing caused by migration and long-term changes in the birth and death rates. o Half of the increase of the UK population between 1991 and 2010 (2.4 million in absolute terms) was due to the direct contribution of net migration (Cangiano, 2012). In further projections net inflow of post-2010 migrants accounts for 47% of total population growth. An aging population will increase the overall demand for property and it type (i.e. age-friendly homes with no upstairs downstairs drama).

Media in UK, such as television programmes, are becoming increasingly fashionable owning a property over the last 25 years. Property purchases, renovations, and 'make-overs' are promoted daily, increasing the interest in housing and the housing market. o In 2009, 37 per cent of households in Great Britain were buying their homes with a mortgage: almost a third (32%) of homes were owned outright and 31 %were rented either from the social sector (18%) or privately (13%)

Population is moving from small town to big town mostly associated to employment and future perspectives. o o Increased demand for housing in major cities Polarization of the economy

Perception of people about location and environment affects on the type of house demanded. o o Increased demand for green houses. Emphasis on the location, which plays a critical role in the decision making of the customers. Parents seek houses close to educational areas (i.e. schools) and conveniently located to their places of work.

Construction industry is affected by the availability of skills within the UK workforce. There is a loss of capacity in the industry associated with skills of trades, professions and managerial. o Shortage in skilled worker availability, which will result in a competitive labour market. Existence of skills gaps such as, understanding the implications of green issues, not having sufficient business and IT skills. Incoming migrant workforce from Eastern Europe may help to ease the tight workforce, but there are problems that increased with it such as: language skills, attitude towards safety or different skill set. o Improving workplace safety and healthcare is being widely considered to make the industry more attractive.

As the different nations of the world, UK has defined income distribution within its population.

Figure 3: The income distribution in 200910 (UK) (IFS, 2011)

Mean equivalised income in the UK in 200910 was 517 per week (equivalised to the level for a couple with no children) 65% of individuals have a household income below the national mean 1.4 million individuals, out of a private household population of approximately 60 million individuals, have equivalised household incomes above 1,500 a week Income distribution may affect the housing market, as preferences of housing and locations will be different between groups. Expenditure capacity may also be influencing the type of house chosen.

o o

Population growth in a fast rate is a global trend. UKs population is projected to increase to 70 million by 2020. In addition to this, migration is contributing to the UKs population growth and the balance of birth and death rates is aging population. Furthermore, the structure and size of households is changing due to changes in social trends (such as womens economic independence, less marriages, etc). Homes location is playing a key role within the society, while environment is also being important for decision making. Income distribution may be also affecting the housing market, as preferences of housing types and locations will be different between groups. Moreover, during the last years it has been a shortage of skilled workforce for the industry, as there is a mismatch of skills, or incoming migrant workforce from Eastern Europe does not satisfy industry needs.

Technology New construction technologies affect working practices in the building industry o Methods on construction building have been changing towards the global trend of using sustainable products and services (Goodier & Pan, 2010). Advance technologies can help work force working efficiently Changes from conventional site-based methods towards a more dynamic combination of methods involving a greater use of offsite production technologies, industrialised techniques and systematic building philosophy

o o

(Girmscheid and Scheublin, 2010). Example: precast concrete panelised systems or timber framed constructions. o Global trend requires the incorporation of new materials to building processes, adding flexibility to it and contributing to energy efficiency. Modern Methods of Construction are being examined as costeffective alternative to traditional methods Use of Information and Communication Technology (ICT) systems for design and construction, as a response to the need to lower costs, compete globally, or solve particular problems, such as coordinating a range of construction projects (Brewer et al, 2005).

The construction industry is being affected by technological trends, which imply the use of Information and Communication Technology (ICT) systems for its processes, as well as changing the technology and materials used. Building materials are following an environmental trend, which is concerned on alternative building materials for the production of sustainable homes. Although the technological trends could improve energy and building efficiency, it should be analyzed from a cost-effective view.

Environment United Nations Framework Convention on Climate Change (UNFCCC) leads the PostKyoto negotiations to attempting to address global warming by limiting greenhouse gas emissions. o Housing has a key role to play in reducing the UKs greenhouse gas emissions, as over three quarters of the energy is used for domestic space and water heating, which accounts for 13% of the UKs greenhouse gas emissions (Goodier & Pan, 2010). Government policy might be introduced for a specific, primary reason, such as a need to reduce waste on construction sites (Goodier & Pan, 2010). Housing Green Paper establishes Governments commitment to achieve sustainable homes. Focus on delivering all new homes to be zero carbon by 2016, as outlined in the UK Low Carbon Transition Plan (Goodier & Pan, 2010)

UK government is using taxation as a means to encourage improving environmental performance e.g. The Climate Change Levy, Aggregates and Landfill taxes. Th construction industry faces nw challenges n replacing nd renovating buildings wth minimal environmental impact. At th same time, th cost f th precautions h t b measured against potential profits. o Energy efficiency and environmental effects are being considered by housebuilders at the moment of offering their products, as people are more aware about these issues (i.e. the usage of low-energy LED lights) Homebuilders are tending to green not only to meet customer demand but also to stay competitive with other competitors and existing homes.

Regulations about waste disposal from construction industry tend to intensify. Waste going to landfill from the construction industry accounts about 100 million tonnes per year (NBT, 2011). 90% of all non-fuel mineral resources are used by UKs construction industry. Suppliers could be countries with less environmental control or labour justice. o Many essential building materials are now in short supply or have global impact (for example the impact of the deforestation of the Amazon rain forests or the copper mining in South America)

Climate change and customers perceptions about environment are shifting expectations placed on the supply of housing of quality, quantity, locality, affordability and sustainability. General move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities. o European Union and many Western Nations are legislating on industrial processes and pollution of air, land and sea (NBT, 2011) The Low Carbon Construction Innovation and Growth Team published their emerging findings (HM Government, 2010) from assessing the strengths of and opportunities for the UK construction industry in a low carbon economy and consider how the UK can be a world leader in the sector (HM Treasury, 2009, HM Government, 2010).

Concerning the environment there has been a concern during the last decades about the pollution, gas emissions and all the factors affecting climate change. United Nations as well as each developed country is shifting the industry policies towards an environmental-friendly framework. In UK, construction industry is affected by these policies, as the Government tends to follow this direction.

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