Associate Feature: Building up Scotland

The construction sector is currently on pause. With speculation that the collapse of the Bute House Agreement could result in a rethink of housing policies, industry will have to wait and see what the governmental break-up means to understand the opportunities the future may hold.

However, long before outgoing First Minister Humza Yousaf parted ways with the Greens, the industry was clawing its way back to normality after the pandemic. A report by SCAPE revealed  that UK construction projects had seen a 30.33 per cent return on investment and had delivered almost £1.1bn of socio-economic value during the first half of 2022. Recent analysis by the Scottish Government also revealed that construction output is currently around 13 per cent above pre-pandemic levels. 

Yet even such promising figures have not guaranteed a boom for the sector, with financial constraints seemingly tying down its potential. The announcement of the Scottish Budget in December was a significant blow for the industry, with housing and building standards facing a cut of £200m in funding. 

The push towards net zero is another source of uncertainty for the sector’s future. Last year, the Scottish Government consulted those in the construction industry on the actions required for a just transition. Despite the Scottish Government saying it would publish a draft plan in “early 2024”, the document has still not been issued.

Amid this period of unpredictability for the sector, Holyrood, in partnership with McLaughlin & Harvey, held a roundtable to discuss the socio-economic value of construction and how the industry could overcome any financial constraints.

Gathering MSPs from the three largest political parties in Scotland as well as representatives from further and higher education and industry experts, the event suggested that failing policies, the skills gap, and the lack of cross-sector communication were the key factors holding back the construction sector. 

Kicking off the debate, shadow cabinet secretary for the economy, Daniel Johnson, said there was a level of “absurdity” around the housing crisis, claiming there are industries “desperate for investable opportunities”.

“There are various government policies seeking to address the supply issue through demand measures,” he said. “So, rather than thinking about how to unlock supply and improve our housing completion rate, they are taking demand side measures which, if you look at economic history, don’t typically tend to work.

“People need investable opportunities that will provide their funds with a consistent and predictable return, and I think currently there is a problem where we have a lot of politicians across all stripes who have made that a kind of bad thing to say.

“This ought to be a booming time for construction but return is vital if we want investment, so we need policies that enable that,” the Labour MSP added. 

Tory MSP Miles Briggs, who is shadow secretary for housing, went further, quoting rent control policies and the shrinkage of mid-market opportunities as some of the “biggest drivers” of the housing crisis.

“I think there is an agreement that we need a reset with different sectors to try to create the right environment for them to have confidence again,” he said. “However, across the last three years, it has felt like some policies have created this slow-down in industry.”

In 2022, former tenants’ rights and zero-carbon buildings minister, Patrick Harvie, capped rents in a bid to address the cost-of-living crisis. However, last month, he proposed to implement long-term market controls as part of the Housing (Scotland) Bill, which is currently at stage one. The new measures would allow local authorities to create rent caps as low as zero per cent.

The plans have faced a backlash, with the Scottish Association of Landlords saying it would make people cut back on investing in their property.

Briggs said the end of the Bute House Agreement would “hopefully” open up conversations to move new financing models forward. He specifically pointed out the value of establishing university partnerships on research projects by claiming that such a model could even finance a large part of the new eye hospital in Edinburgh – which the Scottish Government confirmed in January would not go ahead – without NHS or taxpayer money.
         
Discussing capital investment opportunities, Lillian McDowall, head of business development at SCAPE Scotland, outlined the government’s “vital” role in cross-sector communication. 

“The public sector has this perception that big investors are only interested in massive projects, and we must dispel this,” she said. “There are pension funds that are interested in smaller opportunities. So I think sometimes there is a big gap in communication between the public and private sector.

“The problem is that investors will not invest unless they’ve spoken to the people, and here is where the national agencies come into it. People don’t have the time to go and chap on different doors, it’s the government and national agencies that can go and have those conversations.”

SNP MSP Evelyn Tweed then geared the discussion to the challenge of balancing quality and price, highlighting recent evidence from parliament’s Economy and Fair Work Committee, of which she’s a member. She shared that when discussing procurement frameworks, people had said fiscal challenges were making it “really difficult to put the contracts together”.

“I remember from my days of building houses, it being quite difficult not to move towards price because there was so much more to try to get out of these contracts, especially now when the economic, social and environmental value are so important,” she added.

Addressing Tweed’s concern, Cullen Warnock, chief estates officer at Abertay University, claimed “re-weighing” the social value could solve the issue. 

“For every pound of the public purse, there must be a cross-board multiplier effect,” he said. “So, the value could be that construction projects would lead to better articulation through primary school as the kids are going to school with a full stomach because their parents got a job putting pipes in the streets for building a heat network.”

Warnock, however, warned that only a sustainable growth strategy would allow for such a multiplier effect.

“Start small, prove the model and let it grow, but let every part of it grow, whether that is the number of jobs, the articulation through higher and further education, or, indeed, apprenticeship schemes,” he added.

Continuing the debate, Warnock focused on sustainable housing and funding while highlighting the need for strategic long-term planning. 

“I think there’s almost an immediate, knee-jerk reaction to financial and net zero processes in the climate we find ourselves in now,” he said. “We need to understand these are complicated things that require a really good quality starting point with a really good quality end game. 

“We’re selling a generational transformational shift that brings forward the policy in just transition and we have to start shifting the discussion with investors to outline the positivity around that. We need to explain the 20, 30, 40-year strategic endgame. It’s not entirely apparent right up front, you have to put that path in front of people.”

He continued re-iterating the role that universities could play in securing this reliable long-term planning: “Communities also need to see the benefit infrastructure poses. So, if we’ve got a limit of 2026 for capital spending, how can we prove our 30-year model in two years? Well, with metrics. We can prove the socio-economic model through PhD research and by providing academic papers at the end of every year.

“After this, you present the evidence back to the Scottish Government so you can prove that public spending has a multiplier effect. That’s how the private sector will have confidence in their spending. This is very important because the private sector can upfront finance looking to bring back investments over the long term whereas, the capital expenditure from the government runs on parliamentary cycles. That’s the innovation around bringing together the public and private finance.”

Another focal point hinged on the significant skills gap within the sector, with Johnson saying it could soon leave Scotland at an international competitive disadvantage.

“There is a global phenomenon going on where key sectors are relying on an ageing workforce as the working-age population shrinks,” he said. “Therefore, getting these skills systems right is critical, because there is going to be an increasing competition for labour, and we can’t squander it.”

Chris Boyle, framework director at McLaughlin & Harvey, added to the urgency of the matter, claiming a reliable framework would help fix the talent pipeline. 

“Frameworks allow us to understand how to invest in young people, training, and the workforce,” he said. “This is all badly needed as 67 per cent of workers in the Scottish construction industry are over 50. A shocking statistic, given that Scotland has an economic cycle that goes boom and bust continuously deterring investment for the longer term. Having that framework will allow you to invest for years as it gives that certainty of workload and in turn workforce”.

Briggs added that unless the gap is bridged, labour would continue to be sourced outside of Scotland, taking any economic benefit elsewhere. 

“I see a fundamental disconnect for all the potential we’ve got because there’s no workforce plan,” he said. “The construction sector and the college sector seem to be disconnected. We are cutting things like the net-zero courses at Edinburgh College at the time they should be increased.”

Boyle agreed, adding: “We need to fill in the gaps that are frightening people away from a sector that’s already got a huge set of attractiveness challenges, with apprenticeships that lead on to jobs.”

Similarly, Tweed called for an end to the outdated perception that construction is not career-worthy.

“I think it’s still patchy how schools put forward working in construction as a successful career path,” she said. “Many schools are still saying that to get anywhere in life, you need five As or five Highers, and we need to move away from that.”

Circling the discussion back to net zero, Sam Hart, chair of the roundtable, criticised how discussions often focus around how to generate new clean heat rather than how to reduce the amount of heat that’s required. 

Currently, the built environment is responsible for more than 40 per cent of Scottish emissions. The Scottish Government said that to reach net zero by 2045 emissions from homes and non-domestic buildings combined would have to fall by 68 per cent by 2030. However, with the government scrapping its plans to reduce carbon emissions by 75 per cent by 2030, net zero homes face an uncertain future. 

Johnson called for a clear strategy going forward: “We have the absurdity that firms in Scotland invest in heat networks, but they have to do so in Scandinavia. So, we need to be asking how we help those people invest here, so we can embrace that net-zero future rather than having our money help people in Sweden or Norway.

“We need a shared view on what we need to do and how we need to do it. Unless we have that clear 10-year plan or so, we’re just simply not going to meet those targets.” 

This article is sponsored by McLaughlin & Harvey

www.mclh.co.uk/