Financial support for small builders: another Rangewell initiative
TL:DR With building sites staying open, the construction industry has largely proved a bright spot for the UK economy over the past 12 months. But the future is looking much less positive as orders may be starting to dry up. At Rangewell, we believe that the government needs to focus on the construction sector to ensure that it can continue to thrive – and one of the most effective ways to do this is to provide small and local house builders with subsidised funds.
With most building sites staying open, with work carrying on in the fresh air and social distancing to protect against Covid, construction has largely proved a bright spot for the UK economy over the past 12 months. Work has been steady – but just because the industry has kept working through the various lockdowns does not mean that everyone has been unaffected by the pandemic.
In fact, it looks as though the good times may be coming to an end. Construction output in Great Britain fell in December 2020 for the first time since the first national lockdown last spring.
It may be time for the government to step in.
What are the facts?
This time last March, the construction industry was moving steadily forward, unaware – like the rest of us – that it was about to step off a cliff.
Covid and the first lockdown struck, and many sites were initially shuttered – until a better understanding of the Covid risks prevailed. The construction sector in the main went back to work, sometimes in a mask and, overall, aware of the new working practices necessary with social distancing.
It came as a shock to all concerned but the good news was that, after that initial period of uncertainty and a record 41% fall in business almost overnight in April 2020, construction output has not only rebounded, but it has been growing every month – until now.
Quarterly construction output for Q4 2020 was initially healthy. It had grown by 4.6% compared with the third quarter. This was driven across the board, with bi-quarterly growth in both new work (4.0%) and repair and maintenance (5.5%).
It was starting to look as though the industry was going to be out of the Covid downturn.
However, the resurgence in Covid seemed to have triggered a new set of setbacks. Businesses were pulling back on their construction needs. Following the record quarterly growth of 71.8% in Q3, new orders decreased by 8.8% (£962m) in Q4 by comparison.
According to the Office for National Statistics (ONS), December 2020’s output was down 2.9% compared to November, falling to £13,516m and its lowest level since last August.
The one bright spot was housebuilding. Housebuilders saw new orders for private sector homes jump by 6% compared to the previous quarter.
It is more than just a seasonal downturn. The weather has not been so bad that work could not continue, and the holiday season is easily factored into reports. The stark fact is that December saw falls in both new work (3.8%) and in repair and maintenance (1.5%).
This is more than just a blip. The December 2020 level of output is 3.5% below the pre-coronavirus February 2020 level, the ONS said.
The view from construction purchasing managers
The ONS report broadly concurs with the latest survey of construction purchasing managers, which has indicated that the bounce back from the first lockdown has now started to wane.
The quarterly index shows Q4 still rising – but the figures for output in December 2020 fell to their lowest level since August 2020.
This reflects the sudden closure and equally sudden reopening of sites last spring, and by recovery driven in recent months by the bounce-back in repair and maintenance work.
Across 2020 as a whole, output shrank by 12.5% - its worst performance since the collapse of 2009. Of course, these things are relative – the UK economy as a whole shrank by almost 10% in 2020, its largest annual contraction on record. But December’s slowdown means that construction ended 2020 with a monthly output 3.5% smaller than its pre-pandemic level.
What can be done?
Like much of the economy, the construction industry is experiencing exceptional times, and the recovery that it was pinning its hopes on has been proved to be very fragile.
With everything but domestic construction looking depressed once again, at Rangewell, we believe that it is time for the government to act.
We are experts in all aspects of finance for business, and our team has its finger on the pulse of a wide range of business sectors. They report that the construction sector's good health last year has been replaced with depression as orders dry up and work is becoming harder to find.
We have been seeing fewer requests for funding designed to get construction businesses working – Development Loans and Asset Finance – and more requests for funding designed to fend off the Covid crisis, with CBILS and Bounce Back Funding.
We believe that the government needs to act to get the construction industry up and running again, and there are many reasons why.
- It is better to provide real jobs rather than furlough – and the costs of both could ultimately be similar.
- Stimulating the construction sector with cash injections will provide new jobs now – and by providing new business premises, will pave the way for recovery in the future when it eventually comes.
- Putting money into construction will actually create revenue in the longer term as more jobs are created and more tax generated.
- Constructing houses will mean new homes become available – helping to meet the government’s ambitious home building commitments while offering at least some support for those eager for a home of their own.
What are we proposing?
We want to ask the government to support small and local house builders with subsidised funds. Smaller builders are most at risk in the current climate, but their size can be an important asset in speeding the recovery.
Not only are they in greater need than the larger players, but they also tend to employ a lot of local people. They may be more agile as businesses and can work on smaller sites more quickly than the national players.
They can, therefore, bring new housing supply on-line quickly, and can also tend to build houses more suitable for local communities.
Immediate help with your business funding needs
Of course, if you are in the construction sector, we will also provide practical help with your need for funding - whether you need to fund an entire development or fulfil a single contract.
We can also provide help with CBILS and Bounce Back applications There is still time to access the government-based funding if you have not done so already.
If you are faced with a funding problem, and especially if your bank cannot help provide the funds you need, the answer is always to call us at Rangewell. We are experts in all aspects of business funding and we can use our knowledge to find the most appropriate funding solutions - when going direct to lenders will only mean additional problems.
Talk to Rangewell – the business finance experts