Industry hunts for subcontractors and supplies as housing enters ‘overdrive’

The availability of subcontractors is coming under severe strain as output across the board continues to pick up and the housing sector in particular enters “overdrive”, commentators have said.

This month’s Markit/Purchasing Managers’ Index report, based on survey responses from 170 construction businesses chosen to represent the overall industry, shows that the availability of subcontractors has been falling for the past 13 months – the seasonally adjusted index stands at 36.9 compared to 42.5 in January.

Survey respondents also indicate that the quality of subcontracted work is falling (an index of 44.2 compared to 46.7 in January) while rates charged are climbing (61.1 versus 58.8) although the rate of increase is lower than in May.

Tim Moore, senior economist at Markit, told CM: “The subcontractor figures are flashing red, the availability figures have just fallen and fallen. We’ve had a sustained rebound since the recession hit, but supply chain capacity hasn’t increased to meet the upturn.” 

Items for new housing such as bricks, blocks and fencing are in short supply. Photograph: IStock

The survey has also shown up a continued lengthening of lead times and strains on vendor capacity, with the index standing at 34.6 in July compared to 36.8 in January. Moore added: “The problem with delivery times is generally with housing-related items, such as bricks, blocks and fencing. The issues have continued for more than a month or two, so there’s a lot of concern.”

Items reported to have gone up in price in July compared to June include aggregates, blocks, bricks, boilers, polypipe, concrete and timber.

Overall, the survey shows that output growth was sustained in July, and estimated to be just slightly below June’s high (a seasonally adjusted index of 62.4 in July compared to 62.6).

But the housing sector drove most of that growth, with an index of 68 compared to 62.2 in the commercial sector, and 58 in civil engineering.

KPMG’s UK head of infrastructure, building and construction, Richard Threlfall, commented: “Today’s figures show that construction market activity is going up a gear, with residential activity in overdrive. The increase in housing construction is an interesting case study in the delayed response of the market to government initiatives, with activity picking up just at the point that government has started taking steps to cool the market ignited via Help to Buy.

“Record levels of job creation is welcome news, but it’s no surprise given the high levels of construction market activity.”

Threlfall was referring to the survey’s findings on job creation, where the index reached 64.7 in July – a new record for the survey. January’s figure was 59.5.

Markit’s Moore said that the higher employment figure could be linked to concerns about subcontractor availability, as contractors instead choose to hire directly. 

Meanwhile, the Building Cost Information Service says that brick production has risen between May 2013 and May 2014 by 18% as manufacturers open up mothballed production lines. But because demand has also remained higher than production across the 12-month period, which means that stocks have fallen by nearly 30%. 

Joe Martin, executive director at BCIS, says: “Subsequently, current stock levels represent only two months’ availability in comparison to the three months available in May 2013, or seven months in 2009.

“From the material price perspective, average brick prices flag a 6-8% price increase from June of this year. This will partly be due to the rising energy costs in the production line, but it is also a reflection of the pressure on current stock levels.”