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Housing associations warn supply chain failures caused by COVID-19 could hurt development plans
Social landlords are worried about the impact the coronavirus crisis will have on their development plans, as the construction industry warns that firms are at risk of insolvency as a result of lockdown measures.
Inside Housing has heard from housing associations and private house builders which have warned that their development plans will suffer if a large number of contractors become insolvent or reduce output as a result of the crisis.
Stephen McMorris, director of development and sales at Hyde, said: “All suppliers are concerned about the future impact of the lockdown, be it directly or indirectly.
“Main contractors may be able to weather the storm in the short term, but if there is a failure of a significant number of subcontractors, this will have an immediate and direct negative impact on projects.”
Neil Barber, managing director – commercial at Pobl, the largest housing association in Wales, said: “The government has tried hard to mitigate the effect on industry. We know that the majority of our supply chain are using the furlough scheme but there is inevitably a significant negative impact and we are concerned about the future in this regard.”
Throughout the coronavirus lockdown, the government has maintained that construction sites should stay open where it is safe to do so and if workers abide by social distancing rules. Despite this, a large number of sites have closed in response to the virus.
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Some sites are now expected to reopen in the coming weeks, following the release of the latest set of site safety guidance from the Construction Leadership Council (CLC), which provides more detail on how workers can socially distance on site.
However, Mr Barber said that the new site operating procedures will “negatively impact on productivity” when there is a “more widespread return to work”.
He added: “As a client we have very limited headroom in our viabilities to assist the supply chain with any of the extra costs.
“Any headroom we may have had is being eroded by delays in receiving rental income and for our mixed-use developments there is clearly uncertainty over future values.”
Tom Titherington, executive director for development and commercial at Sovereign, said his team uses a network of smaller firms “to help unlock sites in villages and towns where there is a real need for affordable homes”.
He said: “All of the conversations that we’ve had so far with our supply chain lead me to believe it is in a pretty good place but it is important that we therefore honour all our commitments and keep close to the SMEs [small and medium-sized enterprises] we work with in case the climate changes.
“Things will return to some form of normality at some point and we don’t want people to be going under because of a comparatively short-term economic shock when there is something we can do.”
David Frise, chief executive of the Building Engineering Services Association (BESA), which represents a number of supply chain sub-contractors, told Inside Housing that BESA’s members have furloughed “very high numbers” of staff.
He said a recent survey revealed that 60% of members were anticipating only invoicing 25% of their pre-coronavirus forecasts, adding that insolvency was “without a doubt” a risk for firms.
Mr Frise said: “There isn’t a lot of resilience in construction, not many companies have great working capital, a great balance sheet, so you would anticipate that there will be companies who fail during this period.”
He added: “The next issue you have is: OK, you return to site but then you have to start to employ site operating procedures that have been issued by the CLC... then you are actually not working as productively as you were before.
“You can’t socially distance and work at the same rate... so then the issue becomes: OK if you’re not productive, how do you equitably share the pain between client, main contractor and everybody in the supply chain?”
Fears over the impact of the virus on the construction supply chain are also being felt by private house builders. A number of large house builders have outlined cash-saving plans to ensure they can remain financially healthy throughout the site lockdown and beyond.
A Home Builders Federation representative said: “The industry is keen to get back to work as soon as it is safe to do so.
“Guidelines on safe working practices are being developed that should enable most construction work to be carried out safely.
“However, a co-ordinated approach is needed. Builders are reliant on a range of associated professions to be able to build and sell homes including material suppliers, utility providers, ancillary trades such as carpet layers – as well as removals firms/conveyancing solicitors etc.
“We are thus looking to work with all stakeholders, including government, to agree processes and timings that all parties can work towards to get work started again... History shows us that housebuilding stops quickly but starts slowly, and we need to ensure we do all we can to support a quick resumption in output.”
