The Reasons for Investment in the Construction Sector
There is an accepted sequence that is considered to be an indicator of the investment in the construction industry.
The accepted sequence
lower interest rates = lower mortgage rates = more investment in property = higher house prices = higher debts = higher loans = higher repayments = more money flow in economy = growth of the economy.
This appears to be correct but consider data relating to each element in relation to the sequence proposed.
The Data
Consider the same relationship sequence with property built per year.
Date Interest Mortgage Total Homes
Built Rate % Rate % Constructed
2014 0.50 2.5%
2013 0.50 2.5% 108,190
2012 0.50 2.5% 143,680
2011 0.50 2.5% 141,180
2010 0.50 2.5% 137,260
05 Mar 2009 0.50 2.5% 150,360
05 Feb 2009 1.00 3.0%
08 Jan 2009 1.50 3.5%
04 Dec 2008 2.00 4.0% 188,250
06 Nov 2008 3.00 5.0%
08 Oct 2008 4.50 6.5%
10 Apr 2008 5.00 7.0%
07 Feb 2008 5.25 7.25%
06 Dec 2007 5.50 7.50% 226,420
05 Jul 2007 5.75 7.75%
10 May 2007 5.50 7.50%
11 Jan 2007 5.25 7.25%
09 Nov 2006 5.00 7.00% 212,820
03 Aug 2006 4.75 6.75%
04 Aug 2005 .50 6.50% 209,580
05 Aug 2004 4.75 6.75% 203,490
10 Jun 2004 4.50 6.50%
06 May 2004 4.25 6.25%
05 Feb 2004 4.00 6.00%
06 Nov 2003 3.75 5.75% 190,490
10 Jul 2003 3.50 5.50%
06 Feb 2003 3.75 5.75%
08 Nov 2001 4.00 6.00% 174,080
04 Oct 2001 4.50 6.50%
18 Sep 2001 4.75 6.75%
02 Aug 2001 5.00 7.00%
10 May 2001 5.25 7.25%
05 Apr 2001 5.50 7.50%
08 Feb 2001 5.75 7.75%
10 Feb 2000 6.00 8.00% 176,850
13 Jan 2000 5.75 7.75%
04 Nov 1999 5.50 7.50% 181,990
08 Sep 1999 5.25 7.25%
10 Jun 1999 5.00 7.00%
08 Apr 1999 5.25 7.25%
04 Feb 1999 5.50 7.50%
07 Jan 1999 6.00 8.00%
10 Dec 1998 6.25 8.25% 181,020
05 Nov 1998 6.75 8.75%
08 Oct 1998 7.25 9.25%
04 Jun 1998 7.50 9.50%
06 Nov 1997 7.25 9.25% 191,110
07 Aug 1997 7.00 9.00%
10 Jul 1997 6.75 8.75%
06 Jun 1997 6.50 8.50%
Source: Bank of England Statistical Interactive Database - official Bank Rate history
Source: ONS Table 241: permanent dwellings completed, by tenure, United Kingdom, historical calendar year series
The issues in the sequence from the purchaser point of consideration
The prime issue of the purchaser of a new house is need.
The second issue is a bank loan or mortgage.
The third issue is the purchase for re-sale or investment.
The fourth post purchase issue is the ability to maintain payments even in a variable financial economy.
The fifth post purchase issue is the return on investment even in a variable financial economy.
The issues in the sequence from the developer / contractor point of consideration
The prime issue of the developer is finance. This is usually a bank loan or overdraft facility to establish their business proposal.
The finance is secured by the use of design proposals, land availability, and pre-sales based on market analysis and feedback.
These issues allow construction to begin.
The final issue is the ability to maintain sales and construction even in a variable financial economy.
The issues in the sequence from the bank lending point of consideration
The banks, building societies, funds, pension schemes are in business to move money around the economy to create loans, then debts, then repayments and so encourage productivity to generate money ownership and money transfer to pay off the debts.
This is called economic growth.
The banks call their methods investment and lending.
The banks obtain their money on a draw down system on a monthly basis from the Exchequer.
Finance; as can be seen from the purchaser and developer/ contractor standpoint is key to the ability of construction to operate.
On examining the bank lending; loans or overdrafts; to the construction industry it is established that finance decreased from 2009 to 2012 from £32.2 billion to £19.9 billion. Approximately a 38% reduction so new house construction reduced
Source: Department for Business Innovation and Skills UK Construction: An economic analysis of the sector July 2013
The issues in the sequence from the mortgage lending point of consideration
The mortgage market is a form of long term fixed or long term variable loan to an individual or couple or company to allow for a purchase to be made in the short term.
On examining the data for mortgages the loss of the 100% mortgage in 2008 to 2009 further limited the availability of loans so new house construction reduced.
The issues in the sequence from the building form as value.
The building form of any new housing is finance dependant from the start of the project up to the point of completion of construction.
The developer uses the building form as an image of cultural value; in the current market context; to pre-sell properties before construction to allow loans to be paid back earlier and also profit to be re-invested earlier.
Only proven building forms are financially stable products to obtain a bank loan, approval and be pre-sold before construction.
Consequently housing forms have changed very little.
This trend is exemplified by the ongoing use of the standard titles for building forms such as cottage, terrace, semi-detached, detached, flat, maisonette, bungalow, mews court, town house and country house which have been part of British culture from before the roman era.
Building products are pre-made for multiple situations not specific; manufacture on a need basis.
Building is currently an assembly process of components transported from all over the world. It is not innovation. It is the use of proven knowledge.
The issues in the sequence from the architecture form of response and future value
Architecture is a response to the current context.
It is innovation related to location, materials, people and economy.
Innovation rarely appears in the mass housing market as variations of form.
It does appear as material innovations to adapt earlier redundant house forms.
Architecture is therefore rarely used in the mass 'building' sector.
The issues in the sequence in relation to the end of consumerism and the age of depletion.
Post 2020 cheap oil and energy will be depleting in availability.
Post 2015 the implementation of UN Climate Agreements will cause the use of fossil fuels to be depleted to allow control of greenhouse gas emissions and climate change.
Post 2015 building materials that need fossil fuel extraction, transportation or processing will be depleting.
Post 2015 building plant using non-fossil fuel sources will be needed.
Post 2015 up to 2050 the national power and distribution grid of the UK will be depleted by 80% as fossil fuel use is removed.
Post 2015 property will be retained as is since updating it would require the use of fossil fuels.
Post 2015 the 60% of the UK energy use attributable to construction will be depleting to meet climate change and fossil fuel depletion.
Source: BPF
Post 2015 the 2.5% of the UK CO2 emissions attributable to the construction industry will be depleting to meet climate change and fossil fuel depletion.
Source: Carbon Independent Carbon Footprint Calculator
Conclusions
The data indicates that the number of houses built will not increase as interest rates fall.
The data indicates that the number of houses built will not increase as mortgage rates fall.
The data indicates that the numbers constructed can increase and decrease in relation to interest rates and mortgage rates.
In both the purchaser and the developer the ability to obtain and maintain suitable finance from inception to sale of the property or its final occupation is key.
The ability to obtain finance is depleting.
The existing house forms are out of date
The mass housing market is a service industry assembling mass components.
The nature of construction means it is not a stable, predictable, financial sector.
The existing house building materials are trying to adapt to a new depletion context but they are heavily based on fossil fuels and so are becoming out of date with the current depletion context.
There is an urgent need to create new house forms to deal with the issues of energy, resource and environment depletion before the ability to construct the form is lost.
The revised sequence
The actual sequence of finance in the construction industry in our current depletion context is.
Financial, resource, energy, environment and human investment as a response to individual need = potential construction.
Ian K Whittaker
My websites:
https://sites.google.com/site/architecturearticles
Email: iankwhittaker@gmail.com
15/07/2014
14/10/2020
1439 words over 5 pages.