Will the timber supply chain will stop us Building 300,000 houses?

30 May 2018

 

Last month Iain McIlwee (BWF CEO) was asked to attend a small round table event focussed on the build-out rate for housing hosted by Sir Oliver Letwin MP. 

At Budget, government announced its intention to set up an independent review to look into the gap between completions and the number of homes allocated or permissioned. This panel is being chaired by Sir Oliver Letwin. 
 
The Review aims to:
  • explain the significant gap between housing completions and the amount of land allocated or permissioned in areas of high housing demand, and make recommendations for closing it. 
  • identify the principal causes of the gap
  • identify practical steps that could increase the speed of build out. These steps should support an increase in housing supply consistent with a stable housing market in the short term and so that over the long-term, house prices rise slower than earnings. 
  • provide an interim report to the Chancellor of the Exchequer and the Secretary of State for Housing, Communities and Local Government in time for Spring Statement 2018 and a full report for Budget 2018
As part of his review, Sir Oliver invited key representatives of the building products sector, the relationship between building product manufacturers and housebuilders, and capacity in the sector.
 
Commenting after the meeting, BWF CEO Iain McIlwee stated:

"I thought it was an encouraging meeting, firstly it reinforced Government remain committed to building housing supply to 300,000 units per year.  There was real consistency in the views of the supply chain too, in that any capacity issues are speed bumps rather than barriers.  Product supply will never be a barrier to growth as long as the process is tidied to ensure consent and commitment are linked, procurement practices are improved, manufacturers are given confidence to invest, more is done to ensure that investing in quality won’t be undermined by value engineering without regard for the whole life cost of the project and that the public sector through particularly social and keyworker housing ensures there is a good base load on which to build investment."

A brief summary of the meeting follows. Thanks to all members for their input ahead of the meeting.
 
Building suppliers – Roundtable, 19/4/18
 
Attendees:
• Sir Oliver Letwin
• Brett Amphlett, BMF
• Joe Hudson, Ibstock
• Laura Cohen, British Ceramic Confederation
• Jade Lewis, Saint-Gobain
• Iain McIlwee, British Woodworking Federation    • Jonathan Clemens, Tata Steel   
• Keith Aldis, Brick Development Association      
Officials: x 2 MHCLG
 
The following topics were discussed:
Bricks
Capacity

Existing factories are operating at ‘full tilt’ although there is room for 10-15% capacity growth by increasing shift patterns and increasing the number of production lines. This would take c. 6 months.
Current slack is picked up by imports, but European construction growth in the Netherlands and Belgium is putting pressure on this.
Roughly 60% of bricks produced each year are sold to housebuilders; 40% are sold to merchants. Of these, 50% are sold to construction firms engaged in commercial and residential development, including many smaller firms.
2.4bn bricks is the annual ‘sell out capacity’; there is capacity to produce 1.9bn clay bricks in the UK, with circa 400m imported last year, and around 100m sourced from existing stocks during the last 12 months.
 
Lead in times
It takes roughly three years to plan and build a new brick factory.
There are constraints on recruiting people for new factories.
 
Supply chain
The supply chain for bricks is highly inefficient and the industry needs to work collaboratively to solve this. Competition Law acts as a restrictor to productive collaborative working in this area. Orders are routinely placed and cancelled and this makes planning and forecasting very difficult. Up to 30% of total production is affected in this way.
 
Orders from housebuilders are based on a ‘gross order intake’ that is calculated annually and is an ‘unscientific estimate’.
Encouraging investment in bricks and other ceramic construction materials
 
Kilns last 25 years, and they are not trivial investments – firm, long-term demand is needed to encourage growth. Investment in additional capacity would be encouraged through:
 
• Regulatory certainty
• Government ‘pressing button’ through housing targets and investment in housebuilding, particularly counter-cyclical demand, including new social housing
• Access to nearby secure clay assets, which require 25 year licences
• Support to ‘level the playing field’ on energy costs vs. overseas competitors
Robust trade remedies framework after Brexit to counter dumping etc wherever issues arise from

Brick types
One issue identified was that there are approx. 400 ‘very specific’ brick types out of approximately 2,500 product lines.  The extent of variety is often due to requirements in planning permissions.
Persimmon are investing in a concrete brick factory, but using concrete bricks can increase build times and cost.
Builders’ merchants offer a brick matching service to help businesses obtain the right type of brick for their project.
 
Other ceramic construction materials
• Plenty of extra capacity for clay drainage pipes (and almost no imports). Some extra capacity for clay roof tiles - imports have increased to c.25- 30% UK market
• Some extra capacity for wall / floor tiles – there is currently a significant level of imports. Anti-dumping tariffs renewed in recent EU review
• Some limited extra capacity for ceramic sanitaryware – there is currently a significant level of imports.

Steel
Steel is not used extensively in in residential due to the high proportion of low rise housebuilding which is predominantly brick and block construction. 80-90% of smaller components are manufactured in the UK. To expand use of steel, awareness of how to fix and use steel needs to be improved. Modular construction requires more steel than traditional build methods. Switching on additional capacity, given forecast demand, is relatively short.
 
Windows, frames and glass
 
The window frame sector is very fragmented.
 
There is not a capacity issue in the glass sector, although there are only three main manufacturers, adding capacity would require long-term investment, and imports are difficult due to the fragility of glass. However, most glass is used to replace existing windows rather than for new build homes, and there is capacity to increase output at existing factories.
 
Timber
 
The timber frame industry could scale up capacity of existing factories. More investment is going into UK forestry.
Brexit could be an issue for timber imports, although more investment is going into UK forestry.
Brexit could affect imported materials. If no mutually beneficial UK-EU customs’ agreement is struck, British businesses face paying 20% extra upfront as VAT on imports like timber & bricks. This has immediate implications for operating costs and cashflow for importers, merchants & manufacturers.

Provided by Saint-Gobain following the meeting:
Saint-Gobain UK worked with the Construction Products Association on a study of the factors underpinning investment in the construction products industry. The report makes recommendations on how policy can be designed to reduce uncertainty for business and encourage investment:
 
• Effective regulations should be clearly defined, target-driven and not prescriptive.
• Regulation should be simple with minimal administrative burden.
• Industry should be consulted early and regularly to ensure problems and solutions are mutually agreed and evaluated.
• Regulation should be long-term, with cross-party consensus to prevent changes owing to party politics. Unplanned changes must be avoided.

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