REUTERS | Navesh Chitrakar

Construction in 2009: Time to stop talking about the credit crunch

So what’s ahead for the construction industry in 2009?

As I see it there will probably be three main stories. In no particular order, these are:

  • Sustainability;
  • The changes to the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996); and
  • The credit crunch (one of the most over-used phrases of 2008).

Sustainability

The raft of environmentally friendly measures being introduced will greatly impact construction methods. This includes site waste management plans, the way the Building Regulations deal with new structures, the use of materials and so on. Of course these issues aren’t new, but previously we’ve seen a lot of people “talk the talk” but not “walk the walk”. That will change in 2009, as legislative developments ensure that these issues become mainstream.

After the JCT’s major consultation in 2008 we will also no doubt see guidance and policy documents being published to take into account the changes in legislation, and also to generally reflect the wider focus on sustainability within the construction industry.

Amended Construction Act

After a long consultation, the Government published its draft Construction Contracts Bill in July 2008 which amends the Construction Act 1996. In the 2008 Queen’s Speech, a revised version was published and introduced to the House of Lords. In 2009 we will see whether the Bill continues to find parliamentary time and whether it proceeds to the House of Commons in its current form.

If the Bill goes through it will bring important changes to construction contracts, for example dispensing with the need for construction contracts to be wholly in writing and changing the payment rules. It is fair to say that the proposed changes are getting “mixed reviews” at present.

Credit crunch

My main conclusion here is that it’s time to stop talking about it quite so much!

There is no doubt that a number of factors have caused a major decline in economic conditions.  However a bad situation is made even worse by a lack of confidence, especially when we become overly focused on the negative without acknowledging that that there is still activity in the market.

While there has been a deterioration in buyer sentiment, the fact is that there is, for example, still a shortage of housing and the need to make improvements to our transport infrastructure. (I’ll not mention the Manchester Congestion Charge vote!)

I’m seeing developers changing their strategies to focus more on public sector or “affordable” housing. In addition, buildings still need to be refurbished and, in fact, this is a very good time to buy construction services.

Public sector spend should also offset, at least to some extent, the slowdown in the private sector. There are plans to spend money on the Olympics, schools, Crossrail, green energy developments, nuclear power stations, and a “possible” (if rather controversial) third runway at Heathrow.  It remains to be seen whether the deflationary/inflationary worries in Robert Peston’s blog actually deter the government from “printing money”.

So let’s (in a cautious way) start focusing on the opportunities available and on life after the recession, and resist becoming part of a vicious circle.

3 thoughts on “Construction in 2009: Time to stop talking about the credit crunch

  1. I agree with Edward’s sentiments re: the credit crunch: confidence has to be a major factor and it is all too easy to talk us further into depression. However, I predict that 2009 is going to be an extremely busy year for construction lawyers and practitioners who earn their living from construction disputes. The signs are already there over the last quarter. If you factor in the proposed changes to the Construction Act 1996 and the proposal to widen adjudication to oral contracts, then it will only get busier.

  2. I understand the sentiment, but can we really control what people talk about? Are people going to stop talking about the financial situation because we think they should? I agree that “IF” people had more confidence, then things would probably pick up. However, that is one huge “IF”.

    And how are we going to generate the confidence if no one has any money to lend? My feeling is that we have never seen anything like this before. I am not surprised that people want to talk about it. We have seen recessions before, but the almost complete meltdown of the banking and finance sector is something quite new, isn’t it?

    Perhaps we are paying the price of having borrowed too much. Massive amounts of construction and development have been debt-financed, and the capital has not been there to underpin the debt. Since the banks are no longer in a position to finance development, then who is? Where is the capital going to come from to buy land and erect buildings?

    I really don’t understand how we can get back to a situation where the economy is fuelled by debt. This would indicate that we need a long period in which companies can accumulate their own capital, rather than borrow against assets that are dwindling in value. But where are they going to put their capital while it accumulates? What will hold its value over the coming months and years? I think we should talk about this a lot more, and not just wish the badness away.

    P.S. It would be easier to get people to participate in the discussion if we didn’t suggest that they should stop talking about the topic that was posted!

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