Is Architecture viable in 2013 ?
What is the potential client numbers for each Architect in 2013?
UK Population = 63,047,162
2013 CIA world factbook
UK Total number of dwellings = 26,300,000
ONS 2011
UK working population = 29,120,000
ONS 2011-2012 Labour market statistics
Number of Architects in the UK = 33,000
ARB
Potential number of clients per Architect = 29,120,000 / 33,000
= 882 people.
From who do Architects get their work. ?
This can be regarded as potentially the whole working population but the product produced by Architects is needed perhaps once or twice in a lifetime for an individual. For a professional developer it may be one scheme each year they operate. So the workload is very variable. This in turn leads to potential financial and social instability and can become an incentive to rely on bank loans.
Architects actually get work from previous employers, referrals, responders to adverts, and competitions, referrals through other professionals, becoming there own client, writing, teaching, grants, bursaries, and relying on welfare.
What is the likely amount of money that an Architect can earn ?
Average UK house price approx = £250,000
3B home 2012
Duration for the construction of a house = 2 year
Architects Fees
Full Service - 8% - 12% of total construction cost
(at tender stage) for £250,000 = £20,000 - £30,000
Taken for approx. 2 years work = £10,000 - £15,000 / year
= £833 - £1250 / month to complete the work and earn a fee.
For Statutory Approval Stage only - 3% - 5% of total
construction cost at estimation stage; which will be less
than final construction cost. For £250,000 = £7500 - £12500
for approx. 1 years work = £625 - £1041 / month to complete the work and earn a fee.
On both these fee scales the Architect can expect to be approx. £1931 to £1306 below the average take home pay level.
In the lifetime of a practice how much fee can they expect to earn.
Lifetime of a practice say = 40 years
Allowing for 2 years per project to get the fee paid off = 20 fee paying projects
Total paid fee = £300,000
Less total tax @ 10% = £30,000
Less total pension and secondary tax @ 5% = £15,000
Total = £45,000
Total paid fee less tax and pensions = £255,000
Allowing for £12,000 / year spending over 40 years = £480,000 result in debt
Allowing for £6,000 / year spending over 40 years = £240,000 result in balance
But
Current Architects wages at £40,000 / year are above this spending level and so the only solution is to speed up the workload per year to approx. ten times the basic amount completing not 20 projects but 200 in 40 years which is impractical socially, and economically without more staff.
Therefore the Architect resorts to a Bank loan to fund the business to the point where they can exist on the interest of the loan.
What is the likely amount of money that an Architect can obtain a bank loan based on workload as an asset. ?
Taking the potential number of 882 clients per Architect into account or a number of fee earning new build home schemes over 40 years of practice this would give a fee potential capital value of work to each Architectural Practice of
In terms of minimum fees per potential client numbers
= £7,500 x 882
= £6,615,000/ year
In terms of maximum fees per potential client numbers
= £15,000 x 882
= £13,230,000/year
In terms of value of new build house projects earning fees
= 20 x £250,000
= £5,000,0000 total
Thus the potential total project value to draw a bank loan is very high. Substantially more than the actual fee that can be earned on each project. In this way the Architect can secure the immediate financial stability of a practice with a bank loan and live off the interest. However the Architect by relying on a bank loan also reduces the longevity of the practice through the inability to pay back the loan.
The Architect secures their own future poverty.
What is the potential client numbers for each Architect in each type of domestic Architecture form ?
UK Population = 63,047,162
2013 CIA world factbook
UK Total number of dwellings = 26,300,000
ONS 2011
UK working population = 29,120,000
ONS 2011-2012 Labour market statistics
Number of Architects in the UK = 33,000
ARB
Potential number of clients per Architect = 29,120,000/ 33,000
= 882 people.
New Build
Total new build homes in the UK in a year = 102,570
Telegraph 2010
Potential number of clients per Architect per year
= 102,570 / 33,000
= 3 / year
Existing
Total homes sold per year in the UK
Guardian = 1,800,000 year
Total number of converted and refurbished homes
(Total homes sold less new build) = 1,697,430
Potential number of clients per Architect
per year = 1,697,430 /33,000
= 51 / year
This would indicate a total potential client base of 54 people per Architect not 882 as in the previous scenario.
But.
Fifty four schemes in 2 years requires a work rate of = 4 to 5 per month = 60 per year
This however gives an impossible timescale for each project.
The actual work for each project could extend 2 years beyond the original year.
The fees would have to be spread over these years.
The Architects fee earning ability is linked directly to the timescale for each project.
As each additional project is taken on the amount of time that it can be given in a year reduces.
Increasing the amount of projects therefore only puts the Architect under greater time pressure for the same fee, per project, per month and necessitates that the same volume of work to cover the 4 to 5 projects a month be maintained to complete the work, cover office costs and wages and make the same profit for each scheme.
In relation to a bank loan potential the 54 potential clients and schemes would be spread over several years.
The bank loan potential therefore also decrease to
In terms of minimum fees per potential client numbers
= £7,500 x 54
= £405,000/yr
In terms of maximum fees per potential client numbers
= £15,000 x 54
= £810,000/yr
Method of financing a practice on workload and investment.
1. Get a list of potential work together say 60 at approx per project = £15,000
2. Get as large a bank loan on the basis of the project total value. = £800,000
3. Ensure that the return is guaranteed by the sales on the investment
being made before the construction begins.
4. Invest the money from the loan in investments that pay a higher and shorter timescale return than the fees for the projects, eg less than 2 years such as other construction works.
Say 8 houses at £100,000 each build cost and £250,000 sales.
This results in £ 800,000 build cost and £2,000,000 sales value.
Producing a profit of = £1,200,000
5. Recoup the profit from the investment within the two years
6. Pay off the original capital of the bank loan and interest.
= £ 800,000 + £ 32,400
= £832,400
7. Invest the profit into the bank from which you obtained the loan.
= £367,600
8. Repeat every 2 years to increase your capital profit in the bank.
Office costs
Wages for 1 person office for for 1 year = £30,000
Rent for office = £15,000
Services = £5,000
total = £50,000
Personal cost
Mortgage = £10,000/yr
Life costs = £25,000/yr
Family cost = £30,000
Remaining funding for schemes over 2 years = £252,600
This allows for approx £700 per day to run everything
Not all will be completed in two years so allowing for 4 to 5
per month gives a working time for each that is a week but
overlapping.
This equates to a weeks work providing for a minimum
fee of = £7,500
This allows for 40 hours working time minimum for a minimum fee of = £7,500
This allows for £188 / hour, £1504 / day to run everything and repay
the loan through the year or at the end of the financial year.
This gives a variable, float allowance for £804 / day for
increases / extra costs.
This allows for a funding for the projects for the year of
= £293,460
Less the original funding from the investment gives a yearly profit of = £252,600
= £40,860
The easiest way to put money back into the sequence is to finance
your wages out of another location.
For architects this is teaching. This however puts more pressure
on the working time for the projects and may entail additional staff
and so the sequence will need to be rebalanced.
The sequence has gone astray because
-the numbers of potential work as high to get as large a bank loan
-the potential investments are no longer available or at the same short term timescales to balance out the bank loan.
-the sales values of the investments are not sufficient to make taking on the bank loan viable.
The sequence identifies that the construction industry carries with it the potential to exchange ideas for loans.
The loans then act as a massive movement system, for the banks, of money through numerous contractors, sub-contractors, suppliers, manufacturers, transport groups, local authorities, consultants, clients, valuers, estate agents and
developers.
The industry uses prestige as an incentive to generate value.
The system generates tax potential for local authorities and government and payment potential for utilities.
What is the potential client debt before any work is carried out on any scheme ?
Average debt per household in UK = £57,635.
National Charity Credit Action 2011
This suggests that the potential clients would not be able to meet the required construction costs or fee levels for Architects Services without increasing their own debt level and being less financially stable. The Architect would then be less sure of obtaining their fee at the end of any work.
What is the average monthly client salary that funds Architecture and how effective is it ?
The average pay per month in the UK in 2011 was £2556 net. This equates to a yearly salary of £30,672.
Source: This is money.co.uk
This indicates again that the potential clients would not be able to meet the required construction costs or fee levels for Architects Services without increasing their own debt level and being less financially stable. The Architect would then be less sure of obtaining their fee at the end of any work.
What is the money supply that funds Architecture and what is its purpose ?
The money supply in Britain is made up of several types of Money supply, referred to as
M0, M1, M2, M3, M4 money.
M0 and M1 money is ‘narrow money’ including coins and notes in circulation and other assets.
M2 includes M1 plus short-term time deposits ’broad money’ in banks.
M3 includes M2 plus longer-term time deposits ’broad money’.
M4 includes M3 and other forms of deposits ’broad money’.
Source: http://www.tradingeconomics.com/united-kingdom/money-supply-m3
These types of money translate into figures for 2013 in Great Britain Pounds Million per month.
Money Supply in circulation 2013
M0 + M1 = 65,169 + 1,201,536 = 1,266,705 / 63,047,162 (population)
= £18,906 purchasing power per person in Britain per month
M0 + M1 / 29.12 million (working population)
= £43,424 purchasing power per working person in Britain per month
M2, M3, M4 are excluded from this analysis since they are loans obtainable by the working population or savings accrued by the working population and so contain M0 and M1 amounts.
This indicates again that the potential clients would not be able to meet the required construction costs or fee levels for Architects Services without increasing their own debt level and being less financially stable. The Architect would then be less sure of obtaining their fee at the end of any work.
In terms of the bank loan money supply there are four types or phases in each project.
The money supply to establish the project is Bank to client to design team to Bank
The money supply to establish the design is Bank to design team to Bank
The money supply to build is Bank to Contractor to Sub contractors to suppliers to manufacturers to Bank
The money supply to pay for the Contractor is Bank to Client to Contractor to Bank
It is clear that the starting point of the finances is the Bank. Banks create the incentive to build to create the ability for the client to retain money longer than there competitors. In slang to ‘make money’.
The Banks also create funding incentive by bringing teams together and getting each one of the teams to take out a loan of money to fund their work.
The funding has another, cyclical component.
The Banks are funded by the Treasury which is funded by the taxes collected from the public.
Each construction project is therefore actually financed by the public for themselves and the money supply is the incentive to keep building.
Prestige is the product achieved through the Architect in terms of aesthetics applied in the building that accelerates the incentive to build.
What is the need for the Architecture ?
'The Government’s chief construction adviser Paul Morrell, who led the Innovation and Growth Team that produced the report, said 26 million homes needed to be retrofitted by 2050 - more than one a minute between now and then.'
Construction news 2010
....The Government wanted 240,000 to be built by all sectors every year by 2016, the number of new homes built in 2008 was around 142,000 - 33,000 fewer than in the previous year...
NHF 2012
170,000 new homes between 2011 and 2015 are required to be built be Government legislation.
34,000 homes need to be built per year, currently 70,000 are being built.
NHF 2012
2,833 homes need to be built per month
708 homes need to be built per day
This suggests that the actual work required is needed but not attainable in the timescales for construction.
Conclusion.
Whilst the number of potential Architectural clients is considered by the profession of Architecture to be unlimited it is actually limited by the number of architects seeking work, by the fee earning ability from the work, by the bank loan availability, by the type and timescales for construction projects when measured against possible speed of work and potential fee earning potential, by the clients financial stability, by the average wage of the client, by the money supply in the country at the time of the project, and by the need and incentive for the project to take place.
All these need to be assessed by architect and client before taking on a project.
Discussion at the early stage will not only save time and money it will save wasting potentials and opportunities of each others lives.
It appears however that the profession and its clients must rely on bank loans to fund construction and it is this reliance that is the current problem with the stability of the profession.
The money from the bank is invested, as an incentive, in a product that has become uncertain in terms of value, and is also a risk, consequently less products are produced as the incentive reduces.
The profession and its clients have tried to diversify to establish other sources of work but this is a delusion until the reliance on debt as immediate wealth is removed from the process.
The self build form of architecture is a way to bring the money supply, available monthly funding and timescale for design and construction together, break this dependency, and stabilize the profession of Architecture.
The Architects involvement must reduce to just providing the initial design for the project.
The client and or contractors and design team can then be involved within controllable fee and timescales until each no longer needs to be involved.
All involved then remain financially and socially secure.
The self build solution also retains the chief product of Architecture which is the exchange of knowledge.
Ian K Whittaker
Email: iankwhittaker@gmail.com
14/10/2020
2719 words over 9 pages