construction skills Archives

Why the construction sector needs social housing

With 169,000 children growing up in temporary accommodation – the highest number since records began – the case for the government’s manifesto commitment to ‘deliver the biggest increase in social and affordable housebuilding in a generation’ is overwhelming. This situation damages children’s health and development, and it is costing councils across England £7.7 million every day. It is a national scandal whose social and financial costs are well-understood.

But social housing does more than provide an alternative to poor-quality homes. It is also the foundation of a successful housebuilding system. Building social homes at scale – including during market downturns – can underpin the government’s response to the crisis in construction skills and innovation. Far from being in conflict, social housing and market housing can support each other.

The inherent limitations of the UK’s development model

In a housebuilding system which relies excessively on speculative market housing, developers compete against each other to pay the most for land. Having taken on a large upfront risk through high land costs, developers then need to recoup their investment, building as slowly as necessary to maintain prices. But when sales prices soften, even moderately, market housing starts plummet. Developers are not incentivised to start new schemes if they will have to sell homes for less than they assumed when buying land.

To make matters worse, in tandem with increasing dependence on this speculative model of market supply, the UK’s social housing supply model has become pro-cyclical. Post-war social housing developments were close to 100% social housing. Most costs were covered by grant, and land was assembled at low cost outside the speculative market. This model was insulated from market cycles, allowing the supply of social homes to continue during downturns in private housebuilding. In other words, social housing supply at this time was counter-cyclical.

From the 1980s, the dominant supply model for social housing flipped: grant rates were cut, borrowing costs rose, social landlords had to start competing with private developers in the land market. As a result, an expanded range of ‘affordable housing’ tenures (with costs pegged to market prices) has become increasingly dependent on cross-subsidy from the profits of building market housing. Far from smoothing out the boom and bust cycle of speculative private housebuilding, this model of building social housing intensifies those peaks and troughs. This doesn’t just affect how many homes are built. It shapes how the construction sector itself operates.

Supporting the UK’s construction sector

Ratcheting down: Private housing completions in England since 1946

Over repeated cycles of the housing market, the total output of speculative development is ratcheting downward. As housing starts plummet, so too does the demand for skills and materials. Many construction workers simply leave the sector, often permanently. It is no coincidence that construction workers are more likely to be self-employed than workers in any other sector. Today, more people are leaving the construction sector than joining it, and productivity has remained stubbornly flat for decades. Why would housebuilders maintain a large permanent workforce, or invest in the skills of that workforce, when they know they will need to retrench supply as the market turns?

Because firms cannot predict demand, materials prices have become more volatile. Official statistics show sharp swings in construction output and brick deliveries, worsening shortages and price spikes in an import-dependent system. As the construction industry has adapted to manage the risks of cyclical demand, construction capacity has atrophied.

The long-heralded shift to modern methods of construction (MMC) has also stalled. The speculative, stop-start nature of the industry makes the expense and risks of investment in innovation unattractive. Investors are reluctant to commit to factories which will be moth-balled at the first signs of the next housing market slowdown.

From stop-start to build, baby, build

A more balanced system would combine market housing with a counter-cyclical social housing programme, alongside new market models based on stable demand such as Build to Rent.

When governments fund and enable social housing at scale, it can be built as fast as need demands and construction capacity allows. As the Farmer Review of the UK Construction Labour Model found in 2016, a major programme of social housing would support predictability of demand for labour, skills and materials, resulting in a less risky operating environment for housebuilders, developers and planners. The booms and busts of cyclical market supply are smoothed out by counter-cyclical social supply, so capacity can be maintained and increased despite housing market cycles.

In countries such as Japan and Sweden, innovations and new technologies have thrived on this certainty, creating new opportunities to expand development capacity. It is no coincidence that the last time that modern methods of construction made a major contribution to overall housing supply in the UK was during the post-war social housing boom.

Of course, the benefits of a more sustainable skills base and of innovation in construction today would be felt far beyond the developments which first enabled them. If social housing schemes keep construction workers in the sector during market downturns, those experienced workers will be available to the private sector when the market recovers. If social housing schemes provide enough stable demand to keep MMC providers in business, market housing will be able to benefit from their services, too. While construction capacity is often seen as a constraint on building more social housing, the reverse is also true. A stable pipeline of social housing would expand capacity, supporting more jobs, stronger skills, and greater innovation across the sector.

The government’s new Social and Affordable Homes Programme 2026-36 represents the most significant policy shift back towards a counter-cyclical social housing supply model in decades. A future blog will explore how this could work in practice, and what further changes are needed.

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Mind the Construction Skills Gap

There is no hope of a house-building renaissance without first addressing the systemic construction skills gap. But what can we do?

This fetishisation of the academic – at the expense of the vocational – is undermining our ability to build homes. When I was the vice-Chair of a Board of Governors at an all-through school in 2016, Nicky Morgan – then Education Secretary – introduced Progress 8. The basic tenet of Progress 8 is that schools are encouraged to take the most academic subjects. There are too many hairdressers, as the Local Government Association once said.

Instead, Morgan wanted more young people to study English, mathematics, the sciences, geography, history and the languages. Given the measures are included in school performance tables, schools are incentivised to take them – whether they’re the right choices for young people or not.

But what about bricklayers, carpenters, roofers, scaffolders, electricians, painters and decorators? What about the legion of young students – particularly working-class boys in deprived schools like the one I oversaw, who come from chaotic households, detest books, but are good with their hands?

With a vocational college less than a mile from the school I was based in, at the time it was hard to see why we shouldn’t encourage vocational courses. But the system is designed as such you ignore Progress 8 at your peril. A better attainment record – on paper – might encourage prospective parents and pupils to come to the conclusion that our school was the place for them and that has serious funding implications.

In hindsight, perverse incentives like these have, I suspect, wider consequences. Exacerbating skills gaps across our vocations – construction in particular – is a serious barrier a housebuilding renaissance. This is a self-inflicted crisis. On top of our indifference to the vocational, the centralised skills system, cuts to the Adult Education Budget, and the closure of adult education centres have all meant that the UK plc is increasingly unable to respond to the needs of employers.

In 2018, 44% of small-to-medium housebuilders dubbed the construction skills shortage a major barrier to building more homes – climbing from 27% in 2015 – according to a Federation of Master Builders (FMB) House Builders’ survey. Though concerns over skills shortages fell dramatically the year after for the first time in five years to 26%, the skills gap remained the third greatest barrier to housebuilding, and housebuilders were clear that they expected the issue to get worse before it gets better. Employers were also critical of the work-readiness of our young people. Research by the Construction Industry Training Board (CITB) in 2018 found that over half (51%) of employers felt that school leavers weren’t prepared for the world of work. Business leaders across the industry have long felt the education system is decoupled from the needs of their businesses.

Without labouring the point, there is also greater uncertainty about the existing supply of construction workers. The non-UK workforce accounts for 14% of the construction industry – and over half (54%) in London – according to CITB. The scale of the exodus of Romanians and Bulgarians – more than half of them leaving the construction industry between 2015 and 2017 – should concern anyone who wants to see more homes built, not less.

The speed needed to tackle the skills shortage is all the greater, given the scale of the industry’s ageing workforce. According to the Royal Institute of Chartered Surveyors, 45% of the workforce are over 50, meaning that employers will need a steady stream of employees: 400,000 each year, equivalent to one recruit every 77 seconds.

Clearly the picture is complex and the challenges manifold. While the skills shortages that have receded are likely to be temporary, there is greater uncertainty on the horizon. This is compounded by the general incompetence of a government which has been wholly unable to fix the growing mismatch between the construction industry’s skills demands and a falling number of people gaining construction qualifications.

The introduction of construction T Levels in September 2021 is probably a good start, but the Government has wasted too much time already. The Government allocated £64 million to tackle skills shortages in the digital and construction industries as part of the National Retraining Scheme in 2017. Fast forward to 2020 and the National Retraining Scheme has been incorporated into the £2.5 billion National Skills Fund, yet the talk of construction has been quietly dropped.

The Government long abandoned its promise, as part of its 2015 Conservative Manifesto – and again in 2017 – to deliver 3 million apprenticeships by 2020. In 2018/19 there were 23,000 apprenticeship starts across Construction, Planning and the Built Environment – just 1,000 more than in 2010. A generous reading may make the case that since 2011/12 it has consistently crept up from 14,000 starts, but that would be clutching at straws since it plummeted by 8,000 the year before.

As a result of reform to the apprenticeship system, there has been a sharp increase in the number of providers but it has made little dent in the number of apprenticeship starts. There are several conclusions – and solutions – we can tentatively draw from these facts. The overriding reading of the evidence is that the UK doesn’t have the skills to build its way out of the housing crisis. How do you scale up housebuilding if you don’t have the workforce available to do the work?

The challenge requires a cross-departmental approach on issues ranging from immigration, skills and apprenticeships, the curriculum, and the role of business and further and higher education. I suspect neither the Department for Education (DfE) nor the Ministry for Housing, Communities and Local Government has paid due attention to the chronic skills shortages in construction – partly because the DfE has designed in vocational snobbery.

That the Government done away with the Skills Minister in June 2019 and a replacement was only found in February 2020 does nothing to dispel the accusation. As we look ahead to the national recovery, the Government has a real opportunity to transform how we design and deliver skills training. Those decisions mustn’t be made in the corridors of Whitehall – they must be made collaboratively, with employers, councils, education providers, and they must be aligned with local economic strategies.

There must be a greater focus on attracting talent at home too. Without attracting new entrants to the sector and upskilling the existing workforce, the Government’s target of building 300,000 homes each year by the mid-2020s will remain out of reach.

The Government must also get more construction apprenticeships on board – and quickly. It must forge a narrative which doesn’t fetishise the academic over the vocational, and in doing so must encourage women and ethnic minorities to shatter the glass ceilings that exist in an otherwise male, principally white, industry. The failure to address construction skills gaps now will see the new homes, schools and hospitals needed for future generations unbuilt.

Jack Shaw

Jack is a Senior Policy Researcher for the Shadow Minister for Local Government and has previously worked for the Local Government Association. He is also a member of the London Labour Housing Group Executive Committee.

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