Community and amenity construction sector prospects improve

The prospects for spending in the community and amenity construction sector continue to weaken, but has the lowest point been reached?

Councils spend £18 billion on construction annually according to the Local Government Association (LGA) but years of austerity cuts by central government hammered the community and amenity construction sector.

Now, Glenigan’s data suggests that this is bottoming out. In the three months to February 2018 underlying starts in this sector rose by 19%, which was the biggest increase in any of the nine building sectors covered by Glenigan.

Glenigan’s economics director Allan Wilen said: “This rise needs to be seen in context as the sector has suffered from a very low point. The community and amenity construction sector has suffered as local authorities and government departments have diverted capital spending towards more politically sensitive areas and local authorities still look set to be the biggest losers over the course of this parliament.”

Between 2010 and 2017, budgets for local authorities in England fell by 26% according to independent fact-checking charity Full Fact. “These figures are only broad averages, and individual councils have had different experiences,” said the charity in a statement. “Councils that raise more of their money from council tax revenues or savings haven’t been hit as hard than others—typically in urban areas serving poorer communities—that are more reliant on central government grants.”

Despite these on-going cuts, councils remain a major constituent of the construction industry’s top 100 clients but at a major project level this is coming through housing work or major developments developed with external partners.

Mr Wilen adds: “With money in short supply, local authorities are looking at increasingly novel ways of making the money they have go further.”

The LGA recently updated its 2018 construction strategy and amongst the strategies championed is cluster working.

A two-stage open book process used by Hampshire, Surrey, West Sussex and Reading councils used to trial cluster working on 22 individual projects with a total budget of around £119 million has been championed by the LGA. This approach is expected to produce savings of 14% of the total cost by standardising on design approaches, aggregating and driving efficiency through the supply chain.

Council spending spans different sectors from housing to infrastructure but in its 2017 forecasts, the Construction Products Association warned of further cuts to local authority spending on roads’ and cited results of the AIA Alarm Survey, which continues to highlight the ever-increasing backlog of local roads repairs.

The last Asphalt Industry Alliance (AIA) survey showed a £730 million gap between the amount of money received by local authorities and what those same councils say is needed to keep carriageways in ‘reasonable order’. The next survey is due out imminently and is unlikely to show any improvement.

This work falls under the infrastructure sector in Glenigan’s data and the outlook for the community & amenity sector work also improved in the latest quarter.

The underlying value of work gaining planning permission rose 42% in the latest quarter. This rise was also from a low base and may not be sustained.

“The overall longer-term outlook remains poor and local authorities are likely to face further budget tightening during the new Parliament,” concluded Mr Wilen.