Well, what an environment to be operating in at the movement. The external events that are surrounding organisations coupled with pressures from external (shareholders) and internal (employees) stakeholders makes for a challenging environment. Our priorities need to change. To be considerate of social and environmental matters while maintaining commerciality.
The last two years have thrown a lot at the built environment. Challenges with supply chain, addressing a new way of working under Covid variants and now pressure (even more so than usual) on margins from inflation and the broader cost of living crisis. A few headwinds that really make you think:
– In November 2022, the Bank of England raised their interest rate by 0.75 percentage points meaning that since December 2021 the rate has increased from 0.1% to 3%.
– The Consumer Prices Index rose by 10.1% in the 12 months to September 2022.
– A growing regulatory environment, notably from 15 June 2022 changes to the Building Regulations. Either comply or have applications in and approved by local authorities for why you don’t.
– A revolving door for the housing and construction minister. With the 14th housing minister in 12 years you’ve got to think could a difference be made if they simply had a little time. And more changes to the construction minister were announced this week.
But the industry has shown resilience and is taking on board previous needs to innovate. The industry is adapting. The headwinds though are creating a need to adapt quicker. Above all there is a need to tackle climate change – and address the issue of the cynicism of greenwashing against the sector. It’s not exactly green most of the time to build a building. The sector has new building regulations which are driving a lower operational carbon amount and there is an increased focus on planning applications around embodied carbon. The design and method (and location) of construction are key now.
An organisation can’t really control interest or inflation rates. It cannot predict or determine that a war will occur impacting supply chain. However, becoming more resilient and aware of the working environments we now operate in is key. There needs to be optimisation within the industry and a drive to increase productivity. Investment decisions need to look at the conservation of existing assets and benefits to the wider community. We need to look at problems through different eyes to find more innovative solutions.
Alongside the changes climate change is bringing the industry is resource availability (or rather scarcity). Whether you say it is down to Brexit, the pandemic or other factors it is impacting organisations and leading to wage growth as organisations fight to retain their talent (while also seeking out those to try and bring in). The need to replenish skilled labour cannot be solved the same as say materials (which can be stockpiled). It drives a need for greater productivity and innovative use of technology. It also really raises the point of are we looking for people in the right pot? If we always look to attain the same people then ofcourse at some point that pond will run dry.
We cannot replenish skilled labour in the same way that manufactured materials can be re-stockpiled. Unprecedented wage inflation is starting to elevate the productivity debate across the industry and is also inextricably linked with the embodied carbon point referenced above. At some point the adoption of technology must be attractive.
ESG is on the minds of many, and notably lenders and investors who want answers. More green finance. More narrative and discussion. More action. A real ESG drive will force broader thoughts within organisations and that in itself will encompass skills and climate change.
So the headwinds are there but the sector has the ability to do some remarkable things. Rather than looking to the same teachers to provide the model answer, look differently – how can value be created in the built environment. Internal and external factors are now getting construction to do things differently. The challenge now is how fast they are willing to go.
Words of Wilko 