Blogs

To submit your blog contact the Editor

Blog: BIM bother – contractor locked out

BIM stockKaren Manning and Lynda Ross answer in the affirmative the question: can a court compel a consultant to provide access to design data stored on a BIM platform pending resolution of a dispute over payment?

A £55 million power station was to be built in the Falkland Islands. During the tender period, the contractor engaged the consultant to provide design consultancy services, for which they received a modest payment, with a view to the consultant carrying out full design services if the bid was successful. Those services included design and the preparation and implementation of building information modelling (BIM).

BIM is a technology-enabled process where information and data is comprised in 3D models allowing it be shared amongst relevant parties. It assists with the design, preparation and integration of different aspects of a project. BIM can be a useful tool for planning and management of the design and construction process and beyond. Project software called ProjectWise was to be used to enable the design teams to manage, share and distribute design data on a single platform.

The bid was successful. However, the contractor and the consultant fell out about the scope of the work and the consultant’s entitlement to payment. This resulted in a dispute about what exactly had been agreed: was there no contract; was there a simple contract without detailed terms and conditions; or was there a contract in the standard terms submitted (which included a cap on liability of £1 million)? A large payment had been paid to account but other invoices remained unpaid.

The consultant issued a notice saying it would suspend performance unless payment was made by 2 June. Payment was not made. On 2 June the consultant denied the contractor access to the servers hosting the design data in ProjectWise by revoking the contractor’s password.

The impact to the contractor was considerable – delay and losses well over the cap of £1 million (if it were applicable). On the other hand, if the consultant was compelled to hand over the password, then it would suffer the loss of a very good bargaining position.

The judge decided, on the balance of convenience, to grant the interim order for access to be restored.

Lessons

  1. As technology advances, access to electronic information and how that is governed will become more and more important.  This will particularly be the case with BIM-enabled projects (which the Government are strongly behind) and a single platform approach.  Where passwords allow access, care should be taken to ensure control of those passwords lies in the correct hands.
  2. Consider whether it is appropriate to have positive BIM and copyright obligations in consultant appointments which survive termination and suspension.
  3. Beware of clauses in appointment terms that are subject to payment of outstanding fees (this is often the case with copyright provisions).
  4. Be clear on the terms which govern any appointment at the outset. The passwords dispute grew out of a disagreement about what the original contract terms were.

Black’s Blog: Revolutionary ideas at Hospitalfield House

Jimmy Black

Jimmy Black

Architect Malcolm Fraser did the impossible at the first Andrew Nicoll Lecture (September 22). He made some revolutionary ideas seem sensible.

He says we should stop building houses out of toxic materials, such as timber coated in preservative. We should stop trying to make new build houses airtight by wrapping them up in polythene. Houses need to breathe … so do the people in them. He gave a favourable mention to Albyn Housing Society’s Fithouses, built offsite by Carbon Dynamics on the Cromarty Firth.

He said the fashion for knocking down sound buildings has to stop. Equalise VAT on repair and new build, take away the incentive to demolish, and turn volume housebuilders into volume house repairers. And he insisted we should build social rented homes with the money we currently spend on housing benefit.

Then he said councils should have the power to force the sale of land. That would tackle land banking, where developers sit on property until prices rise. He pointed out that land values increase massively when councils allow a change of use from, say, industrial to housing. Fraser said councils, not landowners, should benefit, and use the money for infrastructure.

Placemaking came next. He was unimpressed by the layout of many new build estates, the wasteful way so many use land and the failure to provide communal areas where communities can form. “Gobons” … the useless decorative bits stuck on to volume built boxes … came in for scathing criticism. Spend the money on better design and quality was his view. He favoured an updated version of Edinburgh’s Colonies; flats with their own gardens, angled to ensure good sunlight, providing privacy and spaces to be sociable.

Fraser is lobbying hard at Scottish Government level for change to current practice and he believes the important folks are listening. Introducing compulsory sales means taking on powerful lobbies and will require political courage.

Andrew Nicoll was a creative and innovative architect. Funding permitting, there will be another Andrew Nicoll lecture at Hospitalfield House in 2018.

  • A former convener of housing at Dundee City Council, Jimmy Black now works for Dundee Voluntary Action on Technology Enabled Care and writes here in a personal capacity.

Blog: The age-old question: salary or dividends?

Roger Campbell

Roger Campbell

Roger Campbell outlines what construction directors should consider when deciding whether to take profits as a salary or dividend.

As a matter of course, many directors of construction companies will seek advice on optimising their tax efficient remuneration. The most popular question being ‘should I extract profits as a salary or dividend?

This has become even more prominent following the introduction of the ‘dividend allowance’ from 2016. Of course, the answer changes depending on the current regime, and particularly as the taxation of dividends now seems to be fair game when Budget day comes around.

Drawing dividends

The ‘dividend allowance’ was introduced in 2016, and was set at a level of £5,000. In March 2017, the government announced that this allowance will reduce to £2,000 with effect from 6 April 2018 (from 2018/19 onwards). This news came before we’d even started to see the effect of the initial change. The purpose of the allowance is to ensure that dividends up to the limit are taxed at 0% instead of the taxpayer’s marginal dividend rate (which can be up to 38.1%).

Prior to the dividend allowance being introduced on 6 April 2016, any dividends drawn which were within the ‘basic rate band’ would be free from income tax due to the ‘notional tax credit’.

Consider a combination

Taking into account the reduced dividend allowance, and assuming the individual has no other income, the most tax efficient remuneration strategy is to draw a salary up to the National Insurance Contributions (NIC) Primary Threshold (PT), (which is currently £8,164) and draw the remainder of distributable (after deducting corporation tax) profits as a dividend. This was also the case prior to the introduction of the reduced dividend allowance.

However, if the National Insurance ‘Employment Allowance’ is available, meaning no NIC is payable on the salary drawn by the director or shareholder, then the salary could be increased to the personal allowance (which is currently £11,500).

It’s not always an easy answer

Generally, there will be corporate tax and income tax liabilities arising with the above remuneration strategy. For the company, dividends are paid out of their ‘after corporation tax’ profits. For the individual, any dividend income that is in excess of any available personal and dividend allowances would be subject to income tax at the appropriate rate.

Due to the progressive nature of the income tax regime and how it interacts with dividends, whilst it is always more tax efficient to use a dividend strategy to extract profits, the tax saving is maximised where total earnings are in the region of £43,000 for Scottish taxpayers and £45,000 for UK taxpayers (excluding Scotland).

Of course, there are some disadvantages to taking the majority of income via the dividend route. To start with, a salary can be taken whatever the financial state of the business, whereas a dividend can only be taken from distributable reserves – so it’s less dependable within some business models. Further to this, if you are on a ‘salary’ of £8,164 – £11,500, sorting out secured lending can be challenging, as many rigid high street lenders don’t recognise income from dividends.

That said, despite the recent pinch, using the salary/dividend combination is still more tax efficient – both for the director as an individual, and for the company itself – and the most effective route for those directors wanting to make the most of their money.

  • Roger Campbell is a manager and tax specialist at accountants and business advisers Scott-Moncrieff

Blog: Property investors queuing up for retail park offers

Alasdair Steele

Alasdair Steele

Strong footfall numbers in 2017 have resulted in increasing investor demand for retail parks, writes Alasdair Steele.

A wet summer tends to be bad for consumer spending. But, it’s turned out to be good news for a particular kind of shopping: retail parks. Figures from retail intelligence firm, Springboard, from July into August this year show a clean sweep of annual increases for footfall at retail parks, ranging from 1.06% during the week beginning July 3, to 2.61% in the week of July 31.

These statistics are just a few examples of what’s turned out to be a strong 2017 for retail parks – the picture has been almost entirely positive, after a few blips earlier in the year. While the number of shoppers at most other destinations appears to be in perpetual decline, the trend seems to be heading the other way on retail parks – and for good reasons.

Firstly, because they provide convenience: retail parks tend to offer accessible parking and involve less window shopping. Their shops also tend to be ideal for click-and-collect services – think Halfords – which has seen them fare much better than the high street against the growing preference for online shopping.

KF 1Their popularity with shoppers is reflected in the property world too. In Scotland, we’ve seen a number of retail parks change hands recently. Among them were parks in Linlithgow and Livingston, both sold to private buyers. At the time of writing, another two significant retail parks are under offer in Scotland – with a total value of in excess of £100 million – while Columbia Threadneedle Investments has just bought Gala Water Retail Park in Galashiels.

There hasn’t always been this level of exuberance for these assets among investors, though. After the crash of 2008, there was consolidation among the businesses they tended to attract, and, as a direct consequence, there was a real lack of tenant demand. The general downturn in retail exacerbated the situation, with vacancy rates hitting 11.8% in 2009. Many were nervous about the sector’s prospects and concerned that rental levels were unsustainable.

However, a new generation of parks is now springing up, populated by a new type of tenant. Visit many of them across the country and the names are likely to be similar: you’ll usually find a B&M or a Home Bargains, an Aldi or a Lidl, and other operators such as M&S Simply Food, Pets at Home, and Iceland’s Food Warehouse are looking to increase their store numbers across Scotland.

kf 2Not only are these well-operated companies more or less ubiquitous on retail parks, but their leases share common traits. They tend to offer long lease terms to good covenants, solid rental growth via some form of index-linked review clause, and the yields on offer are attractive in comparison to other sectors of the market. Another advantage is the lower upkeep costs required for the buildings themselves, compared to other types of property assets such as offices and high street retail.

The rise of these businesses seems inexorable. Lidl announced plans for 60 new shops across the UK earlier this year, B&M upped its target number of stores from 850 to 950, and M&S’s food business continues to boom. This demand for space will see more of this new generation of retail park coming into being, albeit planning restrictions will mean it will never be a flood.

We expect this area of the market to increase in popularity among investors. At a time when income returns are key, there aren’t many other sectors that offer the same combination of secure income and strong tenants at the yields offered by retail warehousing.

  • Alasdair Steele is head of Scotland commercial at Knight Frank

Blog: The future of social housing design and build in Scotland is all about virtual reality

Euan Revell

Euan Revell

Euan Revell, senior architectural designer at planning and design consultancy Barton Willmore in Edinburgh, says today all eyes are on digital design.

Picture the scene. You’ve just been informed that there’s a new development planned in your neighbourhood, but rather than leaf through the image of a brochure, you reach for a pair of VR goggles.  From the comfort of your armchair, you can now see the full multi-million pound housing development laid out before your eyes. Now imagine walking through it, reaching out to touch the bricks and mortar and interacting with the world around you in real time. It sounds like something from the future. But it isn’t.

This is the world of immersive virtual reality where spaces can be created using a combination of computer graphics, wireless tracking technology, headsets, HD projectors and polarised glass, all working together to create interactive and real-life experiences.

Today all eyes are on digital design, architecture and Building Information Modelling (BIM). The world of 3D virtual design and architecture is a fast-growing field and there’s some seriously forward thinking happening in these fields.

Every design will soon be made using virtual reality; enabling anyone to fully immerse themselves in a 3D (BIM) model which can be manipulated and provides an incredibly accurate sense of presence in a space that’s yet to be built. And it’s already happening here in Scotland.

As part of our national architecture team’s ambitions to lead the way in BIM, our Edinburgh team have used the modelling system for the City of Edinburgh Council’s Small Sites Affordable Housing Programme.  The redevelopment of seven sites around Edinburgh which makes up the Small Sites Affordable Housing Programme, will provide around 260 new affordable houses for 21st Century Homes, to be built by Robertson Partnership Homes.

The pressure to use BIM on our social housing project didn’t come from the contractor or the client, it was a decision made by Barton Willmore. It’s inevitable that we won’t be drawing drawings anymore, we’ll be modelling buildings. It’s more fulfilling as a designer to use modelling, after all we’re designing spaces, so it’s better to create them virtually rather than drawing them in two dimensions. Yes, BIM takes a lot of energy to produce a good set of documents, but these documents will be more coordinated and more rigorous.

What’s more, you can walk around your drawing set, which in turn produces better designs. It can quickly highlight areas that are needing a bit of design TLC. When you model in 3D you also, by necessity, think about the buildability – if it’s difficult to model, chances are it’s difficult to build so you become much more aware of the construction. This is where we can manage costs more effectively and less builds running over time.

So it’s good for the designer, but what about the public? For the Edinburgh Small Sites Programme, we were able to present our scheme in a much more dynamic way at public consultation. Traditionally, members of the public are given a set of plans to review and maybe one or two visuals to give them a flavour of what the development might look like. But when you have designs modelled in BIM – you have the opportunity to take them on a virtual tour.

As well as the Edinburgh Small Sites Programme, we also used BIM as part of Fife Council’s Affordable Housing Programme at one of the key sites and the levels of public engagement soared. Presenting our plans in this way allows us to show residents how our development looks from their bedroom window, from across the street or three blocks away. It’s much more rewarding and transparent as your design gets interrogated far more extensively.

On the occasions that we could use the 3D model to walk people around the site, the public were much more engaged, and were able to make more informed comments. They could readily see how the development would look in the local landscape. People were interested in materials, roof forms, massing of the buildings and, naturally, ‘how will my house be affected?’

We can demonstrate how shadows will fall at various times of the year, how the building will look from a neighbour’s garden and many other design considerations. It’s proven to be a vital tool for engaging with stakeholders and getting their understanding and buy in. Everyone just got it when they could see it in 3D. The queries we received were more considered and the level of engagement across the board was fantastic.

We’re already looking towards using gaming software – much like Minecraft – where we can take communities on a virtual reality tour of our designs and allow the community to manipulate these designs to incorporate their own ideas. It will not only be empowering for local communities but will allow us to continue to stake our claim in leading the way in the social housing sector.

Blog: Top tips for future-proofing your business

Marc Shenken

Marc Shenken

Succession planning was always a hot topic when markets were buoyant and businesses were optimistic. However, the recession meant many owners put this forward planning on hold, even in the construction sector, which boasts a high number of owner-managed and family businesses.

However, recent research carried out by Scott-Moncrieff found that, as the ‘new normal’ is bedding in, the topic of succession is seeing a resurgence in popularity.

The firm’s latest annual UK-wide report, ‘Strength amidst uncertainty in 2017: The SME view’, finds that almost a third (29% in the UK and 31% in Scotland) of SMEs are certain or very likely to review their succession plans over the course of this year. However, given that succession planning hasn’t been a priority of late, many may not be aware of the full range of options available.

Encouraged by the latest results, Marc Shenken, a partner at the business advisory and accountancy firm, sets out the key things construction business owners should think about when planning for the future. He emphasizes that it’s vital to think early on about what type of exit you want to achieve and, if selling your business, who you want to sell it to.

Failure to plan could not only reduce the potential value of a business, but could lead to a loss of advantageous tax reliefs and expose owners to unnecessary risks.

According to Marc, top tips to plan for the future of your business include:

Understand and verify what your business is worth

If you’re favouring a sale and exit from the business, you should gain an idea of how potential purchasers may value your business. Alternatively, if you are planning to pass the business on to the next generation, a valuation will help you determine the likely value of this gift and to plan accordingly.

Get tax advice

You could miss out on valuable tax reliefs simply by failing to plan in good time, or by making minor changes to your business. Tax planning does not always cease when you sell or hand on your business, so you may need to consider how you invest or protect any cash proceeds in a tax-efficient manner. Where possible, take advice from tax planning and wealth management specialists.

Don’t hand over any baggage

Settling any disputes with suppliers, customers, employees or HMRC is vital to ensuring your business is in the best position to be sold, gifted or wound up in a timely and efficient manner. Gaps in the management team should be addressed, and you should make sure that your accounting and tax records are in good order.

Keep your corporate structure simple

Corporate simplification planning provides vendors with the comfort that no outstanding risks or liabilities remain, and can also significantly increase the value and attractiveness of your business.

Planning for the future has, of late, been a luxury that most could ill afford. However, for those directors or owners that have come through difficult times and now resolved to stand back, get out or move aside to let the next generation take things forward, there are many options available. While there are a variety of things we might not be able to predict at the moment, planning the future of your business is one area where you can take some control.

Just a Minute with James Gibb residential factors MD Nic Mayall

Nic Mayall

Nic Mayall

The latest participant in the Just a Minute feature by our sister publication Scottish Housing News is Nic Mayall, managing director of James Gibb residential factors, which has offices in Edinburgh, Glasgow and Aberdeen and manages 24,000 properties throughout Scotland.

How did you get started in the industry?

I’ve always worked in property in some capacity. Initially I started in estate agency, diverged into letting and then spent 10 years in corporate relocation. Moving into property factoring was a bit of a shot in the dark but it’s been incredibly rewarding and I only wish I had made the move earlier.

Biggest professional achievement:

I’ve been lucky enough in my current role as Managing Director to have the opportunity to input into shaping our business and develop innovations in customer service. We’ve recently invested in a new client access portal and launched a range of customer guides, all of which have had amazing feedback.

Best advice you received:

It’s hard to say as I’ve received a lot of good advice over the years and I try to take the best bits on board! A previous boss of mine used to say, “the sun will still rise tomorrow” and that’s always a good way to contextualise things.

What is the most important part of the industry?

Customer service without a doubt. When I started in factoring, the main emphasis was on property knowledge. Whilst this is important, we are in a customer facing industry and good customer service is what makes companies stand out.

What do you like most about your job?

The continuing variation. No day is the same and it’s all about juggling balls and making sure you catch them! I’m lucky enough to work with a great team of people who are highly motivated and professional and that makes it so much easier.

And least?

E-mails. I used to receive letters from clients when I first started but nowadays, communication is almost exclusively by e-mail. E-mail is a great quick way to communicate but there can be an expectation that everything has to be responded to immediately. Sometimes it’s better to spend a little more time and compose a better, more comprehensive reply rather than fire off an immediate response.

What you would most like to change in housing?

I think there is still some room to look at adopting more generic Deeds of Conditions for properties so there is more consistency. Incorporating a provision for a sinking fund for developments is also a sensible way forward.

What future issues do you see arising in housing?

We’re at an interesting point in housing in Scotland. I think the social sector and the private sector have a lot to learn from each other and there are plenty of opportunities for partnerships going forward.

Which newsletters do you receive?

Scottish Construction Now which helps keep me up to date and the Edinburgh Chamber of Commerce newsletter.

How would you change Scottish Housing News?

I wouldn’t – I like the layout and depth of information.

Do you read a daily newspaper?

I used to read about 3 but perhaps it’s a sign of the times that I now get my news online. If I’m taking the train to work, I’ll read The Metro but I probably get most of my news from the BBC news website.

Which social media sites do you use?

As a company we’re now using social media which is a great way to communicate and get your brand known. Personally I use Facebook and Twitter a lot as well as LinkedIn for business purposes.

Hobbies and interests:

I’m a big rugby fan and still turn out for my local vets team. However, I’ve just ruptured my Achilles tendon playing 5 a -sides so I may have to take up something a little more sedentary! I’m a keen quizzer and have appeared on The Chase and The Weakest Link in the past.

Favourite holiday destination:

I’ve been fortunate to visit a lot of great places so it’s hard to pick a favourite and there’s still a lot left on the bucket list. We’ve been to Turkey a couple of times and the weather is glorious, the people friendly and the standard of hotel is exceptional.

Blog: New Innovation Factory can help industry do things better

Chris Shaw

Chris Shaw

Chris Shaw, associate development director of regeneration company Urban Splash, provides his view on Construction Scotland Innovation Centre’s newly launched Innovation Factory.

Just yesterday, I had the pleasure of addressing a huge room full of Scottish construction professionals. But this wasn’t any old room – it was Construction Scotland Innovation Centre’s new Innovation Factory, a massive workshop which from today onwards, will be home to a whole bunch of state-of-the-art construction and manufacturing equipment that anyone in the construction industry can use.

It’s unlike anything else in the UK, so as an Englishman who is passionate about innovation in construction, I’m a little bit jealous.

I’d been invited north of the border by the Construction Scotland Innovation Centre to talk at the launch of their Innovation Factory about my experiences with Urban Splash, the award winning regeneration company I work for in Manchester on developments around England.

Urban Splash was set up by two friends, architect Jonathan Falkingham MBE, and entrepreneur Tom Bloxham MBE, back in 1993. At the time they had no grand plans other than wanting to bring all the many empty buildings that were lying around in Liverpool and Manchester back into use.

What really set Urban Splash apart from other developers was that it based its investment decisions on what it thought would be future trends, rather than responding to historic ones. This was a very unusual approach in an industry which is traditionally very conservative and cautious. When we started developing in city centres, people thought nobody would want to live in Manchester or Liverpool city centre – it was seen as very radical.

But our approach was a success; Urban Splash has undertaken more than 60 regeneration projects, invested over a billion pounds in regeneration and created over 5,000 new homes, 2 million sq ft of work space, and thousands of jobs.

The £2 million Innovation Centre was launched yesterday with a major industry event

The £2 million Innovation Centre was launched yesterday with a major industry event

Being bold and innovative is where we share many similarities with the Innovation Centre team. They are passionate about getting Scottish construction businesses to look to the future and do things better. In the Innovation Factory, they have an amazing facility that’s open to anyone who wants to use it to prototype and develop new products, processes, systems and solutions. As well as all the latest equipment, they have people to show you how to use it, and collaboration and training facilities to allow organisations to share knowledge and up-skill the next generation of talent.

A particular area of focus for CSIC since it launched in 2014 has been offsite manufacturing. I believe that offsite is a game-changer when it comes to tackling the current housing shortage. Scotland alone needs to deliver 50,000 new affordable homes and an estimated 75,000 private homes over the next few years. Offsite fabrication and modularisation can really speed up housebuilding, because while the building components are being manufactured in a factory, onsite preparation can be going on at the same time. Using a controlled offsite environment can reduce the impact of adverse weather conditions on the project, reducing costs while also improving safety.

Many people think modular housing means that we’ll soon all be living in bland identikit shoeboxes. However, with manufacturers taking a 21st Century approach to mass customisation, as the car industry has, nothing could be further from the truth. This is one area we are really investing in at Urban Splash. Our “House” project aims to combine the cost benefits of modular construction with the flexibility offered by architect-designed properties. Customers have the power to design and determine the layout of their home, which is then made in a factory, and transported as a pre-assembled module to site where it is craned into position. Our maiden scheme in New Islington in Manchester is sold out, and we now also have developments at Irwell Riverside in Salford and Smith’s Dock North Shields, with plans for Scotland in the near future.

CSIC has also been supporting a consortium of Scotland’s offsite manufacturers for some time, which is making real progress in terms of allowing these businesses to collaborate and improve Scotland’s offsite proposition.

Embracing offsite is just one of the many ways CSIC can help your organisation. So if you’re in the UK and you’re involved in construction, come and see the amazing Innovation Factory. I can’t tell you how much the founders of Urban Splash wish there had been a facility like this back in the 1990s. But it’s here now – so use it!

Blog: Build to Rent could plug housing shortfall

Block one at Dandara’s Forbes Place development

Block one at Dandara’s Forbes Place development

Scotland’s housing shortfall could be plugged by Build to Rent homes but opportunities as well as threats exist for the sector, says Dr John Boyle.

Build to Rent (BTR), or institutional investment in the private rented sector (PRS), is now emerging as a major new way of providing housing across the UK.

This type of housing is common across Europe and the US where, by way of example, around 25 million people live in the BTR sector. However, to date, this sector has made little impression in the UK and Scotland.

But there are now clear signs that this is changing, with significant new BTR developments across England, most notably in London and Manchester. As things stand in Scotland, only 2% of the UK total of 84,000 units planned or completed is located here.

The attractiveness of BTR for investors is easy to see – it reduces construction risk, greatly enhances the speed of delivery, is not tied to mortgage affordability, is more efficient from a management perspective, and can improve place-making. For tenants, BTR provides quality, purpose built housing and a greater level of amenity.

To investors, the main Scottish cities are attractive in a BTR context, with higher yields, lower capital requirements and potential for market growth that outstrips many other UK cities. Demographic growth is also fuelling demand, while housing supply remains very weak.

Despite Scotland annually reaching record population levels, we are currently only building around 17,000 new houses per year, 30% down on where we were pre-recession and about half of the level that the Scottish Government targeted in its 2007 Firm Foundations policy paper.

Scotland now has its first operational BTR scheme with the 292 units at Forbes Place, just outside Aberdeen, and there are over 2,500 units now planned in Edinburgh and Glasgow. Rettie & Co have advised on the purchase of Springside in Edinburgh, where a mixed-use scheme by Moda and Apache will deliver over 500 rental units. Scotland also has a number of mid-market rent (MMR) schemes, essentially affordable BTR, including Harbour Point in Edinburgh, where 96 units generated over 3,400 applicants and so demonstrating the sheer scale of demand.

Political “noise”, especially over the prospects for Indyref2, and possible impacts on currency and taxation, has been a factor in BTR investors holding back on Scotland. This is not for reasons of political partisanship, but simply because of the investor dislike of uncertainty.

These concerns were alleviated to an extent after the UK general election, after which Indyref2 seemed a more distant prospect, but have re-emerged as various Scottish councils have signalled support for rent pressured zones (RPZs) or, in effect, rent controls, after the recent council elections. Bluntly put, investors do not like being told how to price their assets.

The Scottish Government has been trying to woo the BTR sector, with measures such as a rental income guarantee scheme (RIGS) under consideration. However, it does appear that with the prospect of rent controls and other tenancy reforms, the government is using the brake and accelerator at the same time and, in so doing, is stalling the sector. These issues are soon to be debated at two major conferences in Edinburgh – the Scottish Property Conference this Wednesday and the Build to Rent Forum on 12 October, where government, industry and academics will meet to discuss housing issues.

Government and industry need to work together to tackle Scotland’s long-standing housing problems, which is fundamentally driven by supply shortages. Lessons can be sought from Manchester, where effective political leadership has shown the way forward in establishing sectors like build to rent and boosting housing supply. Steve Sheen from Manchester City Council is set to discuss how this has been achieved at the forthcoming Scottish Property Conference. Arguably, we need some of this kind of leadership here.

  • Dr John Boyle is director of research and strategy, Rettie & Co

This article was originally published in The Scotsman

Blog: Rising costs and skills shortages expected to weaken construction industry outlook

Andrew McFarlane

Andrew McFarlane

Increased building material prices and a shortage of labourers can flatten the Scottish Government’s laudable building ambitions, says Andrew McFarlane.

As the population of the UK inexorably increases, the most frequently employed stock response in political circles is to promise to build more houses. In Scotland alone, the Holyrood government has a target of 50,000 new affordable homes.

Vast sums of money have been allocated with a view to upping the building rate and encouraging councils, housing associations and construction companies to deliver new accommodations despite a challenging economic environment.

While such ambitions are laudable, there are many factors which can throw plans off target, and it is becoming clear that considerable increases in the price of building materials are heading up the worry list.

A newspaper investigation earlier in the year disclosed that some of the essential raw materials of the construction industry in the UK have been hit by price increases of up to 35%. Hikes of this magnitude can push the most meticulous margin planning into disarray.

The costs of some construction components, including plasterboard, chipboard and loft insulation, are rising at their fastest rate for 25 years.

The Construction Trade Survey from the Construction Products Association in Q4 last year showed that overall costs increased for 88% of civil engineering contractors, while 75% of main contractors also reported a rise in raw materials costs.

The main blame for these cost rises has been laid at the door of Brexit, with the subsequent decline in the value of sterling which is producing industry-wide inflation. Increased energy prices are also hitting manufacture of items such as bricks.

Nearly a quarter of building materials supplied in the UK are imported and a modicum of good news is that, in a typically proactive response, many trade suppliers are actively seeking to source alternatives to traditional markets.

But as well as cost issues, the construction sector is beset by an ongoing skills shortage affecting key on-site trades, with main contractors reporting at the beginning of the year that shortages of carpenters and plasterers were at their highest in nine years.

The Federation of Master Builders also warned of a shortage of labourers. Nearly one in eight comes from outside the UK and there is concern that many of these employees may decide to repatriate in the event of a hard Brexit.

As well as material costs, wage inflation is playing its part in the worries affecting construction. A survey by recruiter Hays showed that average salaries in construction and property rose by 2.8%, with building services achieving 3.5%.

Nearly two-thirds of building service employers said they had raised salaries over the course of 2016 and the same proportion expect to have to offer similar rises in 2017, with 16% anticipating that these increases will be in the order of 5% or more.

It is hardly surprising that the Office for National Statistics recorded a 1.2% decrease in construction output on May this year, both month on month and three month on three month. The most notable decline was in infrastructure, which fell 4%.

The construction industry is resilient. It has to be, considering the wide variety of external factors which can buffet it unexpectedly. But despite all its efforts, a weaker outlook for the rest of 2017 seems inevitable.

  • Andrew McFarlane is a consultant in the Glasgow North office of DM Hall Chartered Surveyors and a Fellow of Royal Institution of Chartered Surveyors