How will coronavirus impact construction supply chains?
The UK construction sector has for many years relied heavily on imports from continental Europe and China.
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However, many housebuilders and developers have been trying to rely less on international sources to make their supply chains more sustainable and resilient in the face of uncertainty over Brexit.
This approach could become more commonplace as coronavirus brings supply chain management into sharper focus. The industry’s appetite for more domestically sourced product may rise to mitigate the risks of global disruption, which could encourage more local UK construction activity, boost employment and improve the sector’s sustainable credentials.
The UK housing market has traditionally relied on imports from continental Europe for kitchen and bathroom appliances and building facades.
But coronavirus has halted production of goods due to factory closures and workers in quarantine, which will depress production longer term and delay shipping times.
Meanwhile, China also shut down many factories in response to coronavirus, leading to shortages of product and increases in prices.
China was the single largest source of imports for the UK construction sector in 2018, accounting for £2.831bn of product or 16% of the total, according to the Department for Business, Energy and Industrial Strategy. It was followed by Germany (£2.577bn), Italy (£1.052bn), Spain (£0.909bn) and the Netherlands (£0.907).
These top five import markets accounted for 46% of total construction-related imports in 2018, emphasising the UK’s reliance on China and continental Europe.
Given the disruption this is likely to cause for an indefinite period, could coronavirus encourage firms to review their supply chains?
Justin Gaze, Head of Residential Development Land at Knight Frank, comments: “When we come out of this, do we end up working differently? Will companies shorten supply lines? If we become more reliant on UK supply lines, then building will be more expensive. People are looking at their global supply chains, and instead of sourcing product from China they might look to obtain building material from Europe or preferably locally in the UK.”
Residential constructions costs were already expected to rise, prior to coronavirus. In February, the BCIS forecast build costs will rise by 23.6% over the next five years, putting pressure on land values.
Over the past four years, build costs have been on an upwards trajectory, climbing 13% between January 2016 and summer 2019, according to the UK Department for Business, Innovation and Skills, before levelling off towards the end of last year.