Cracking construction’s productivity puzzle

According to Dr Paul Krugman, the Nobel laureate economist: “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

Since the Great Recession of 2008, productivity growth across the UK economy has been particularly poor and the country as a whole has fallen further behind competitors like the US and France. As Philip Hammond put it last year: “It takes a German worker four days to produce what we make in five.”

For many people in the UK, this has contributed to lower than average wage increases. When combined with rising inflation, now at 3%, many employees have seen their real earnings decline over the past decade. With the government massively dependent on income tax receipts and national insurance, low productivity and therefore wage growth in the private sector is also bad news for the UK’s public finances.

It’s no wonder therefore that the government is keen to boost productivity. And one sector where productivity growth appears to have been particularly poor relative to the rest of the economy is within construction. Traditionally one of the main ways to improve productivity is to invest in new technology, plant and staff training. But the structure and operating environment of the construction industry makes it averse to the types of long-term strategic investment that might improve productivity.

With the UK’s historic susceptibility to boom-and-bust economic cycles, and meagre profit margins, many main contractors want to avoid expensive fixed overheads. Most gave up directly employing construction workers and owning their own expensive plant decades ago. And, for the same reasons, most of the subcontractors that do the actual work on site prefer to take on casual labour, meaning that they have little or no incentive to invest in training. Professor Jim Meikle at UCL sees this as a particular problem in the south-east, where a bountiful supply of well-trained foreign workers has further removed the need for UK employers to invest in training and new technology.

One area of technical innovation where the UK is beginning to make progress is in off-site fabrication, which promises to slash programmes and reduce the need for time-consuming and wasteful wet-trades on site. But ironically, because of the way in which off-site components are classified by the statisticians, these productivity gains are attributed to the manufacturing sector and not construction. So prefabrication actually contributes to construction’s flat-lining productivity growth. Jim Meikle also warns that the shift to off-site fabrication is actually leading to the further de-skilling of the construction industry, as workers are increasingly required just to assemble a kit of parts on site.

If our physical environment is central to our wellbeing, then the untapped productivity gains from better buildings and townscapes must surely be immense

According to Brian Green, a construction analyst and author of a recent CIOB report on productivity, this productivity puzzle isn’t just a UK issue. It turns out that, despite underperforming relative to the rest of the economy, the UK construction sector is not actually doing too badly compared to other developed countries. Whereas productivity growth has essentially been at zero in the UK for the past 20 years, in the US it has actually gone down by half since the 1960s. Green thinks it might be the way in which productivity is recorded and the figures interpreted that makes the picture look so bad for construction. As he puts it: “It’s strange that in the whole of the developed world construction productivity is going down the pan.”

Both Meikle and Green point out that the figures don’t give credit for areas where construction has made massive improvements, such as on-site safety, where deaths and serious injuries have been reduced significantly. They also point to the cyclical nature of the industry, and the fact that different areas of the construction industry are inherently less productive. Green argues that as an economy matures, low productivity activities almost inevitably form a larger proportion of the construction sector. The large motorway infrastructure and system-built housing projects of the 1960s weren’t very labour-intensive, relative to their cost, and therefore contributed to relatively high productivity growth in terms of output per worker.

However, the maintenance and repair of that ageing infrastructure and housing is labour-intensive and therefore pushes down the headline productivity levels. As Green points out, at current rates of housing demolition and replacement in the UK, the average new-build home is going to have last more than 1000 years before it gets replaced. That slow rate of housing renewal clearly builds demand for maintenance and repair work as opposed to more productive new-build construction activity.

Does architecture, which for statistical purposes is categorised as part of the business services sector, have a role to play in improving construction’s productivity, and boosting the wider economy? Green sees architects’ role in solving the puzzle as “incredibly important” and highlights the need for those who design buildings to better understand construction to ensure buildability. As he points, out, “If you can improve the productivity of the construction process, the more cost effective it becomes and the more attractive it is to build”. So architects and contractors all stand to gain from a more productive industry, in which clients find it more affordable to build.

But Green and the CIOB report he authored urge caution about reading too much into the official productivity figures, and recommend that we all look beyond the statistical measurements to see construction and architecture far more holistically. As he points out, architects and contractors are collectively engaged in creating our built environments – our homes, schools and workplaces. The impact of these spaces and places is not measured, but what we do know is that happy people are statistically far more productive than those who are unhappy.* If we believe, as most architects do, that our physical environment is central to our wellbeing and happiness as individuals, and communities, then the untapped productivity gains from better buildings and townscapes must surely be immense.

As the government ponders an expansion of public sector house building, new towns on the green belt and ever denser urban environments, construction’s ‘productivity puzzle’ reveals itself to be only part of a wider, far-reaching debate required about the character and quality of Britain’s future shape. We all know that good architecture and well-made buildings have the power to elevate everyday life. Penny pinching and poorly planned new development around the fringes of our towns and cities will only exacerbate the problems with the UK’s too often mediocre built environment. The architectural profession much pitch the argument that good architecture should not be seen as a luxury or an afterthought, but as a vital driver of economic productivity in a developed economy.