Room for improvement

Summary
• The private RMI market is down 17%, but still worth £10bn.
• Private housing starts this year will be 72,000.
• The Scottish and Welsh governments are backing a RMI VAT cut.
• Building energy efficiency grants and loans are boosting the RMI market.

If homeowners can’t move house they improve instead. At least that’s the conventional marketing mantra in a property downturn, but at first glance in the current climate it looks like wishful thinking. Few markets have escaped this recession, and repair, maintenance and improvement (RMI) is not one of them.

Latest Construction Products Association (CPA) numbers underline how tough business has become. In private housing they show RMI down 10% in the first quarter and project overall contraction for the year of 17%, taking market value down to £10.1bn.

CPA economics policy development director Noble Francis attributes the downturn to “dwindling consumer confidence due to rising unemployment and a lack of credit availability with a squeeze on mortgage equity release”.

“The conventional comforting ‘if folks can’t move they’ll improve’ theory has been frustrated by the broader lack of liquidity in the market,” agreed Builders Merchants Federation (BMF) managing director Chris Pateman. “That’s prevented improvers from adding to existing mortgages and builders and landlords from borrowing to invest.”

After rising in 2008 by around 2.4% to a market value of £6.4bn, public housing RMI has also headed down. The CPA expects 5.5% contraction this year, and predicts a further 5% decline next as the government cuts capital spending to offset its £180bn of public borrowing.

And, led by a fall in office and retail work, commercial RMI has shrunk even more sharply and is expected to be down 18% over the year.

Greater resilience

But despite all the red lines on the CPA graphs, there is better news hidden here and that is that the RMI sector overall is still proving more resilient than new construction. Public housing starts may be growing tentatively, with a 6% rise to 26,000 predicted this year and another 5% in 2010. But this is far outweighed by the private sector slide. Private starts fell 51% in the first quarter and the CPA predicts shrinkage over the year of 32% to just 72,000 units.

So, according to the BMF, even though it’s intensively competitive, RMI does warrant a particular focus from the building products sector.

“It is undoubtedly holding up more strongly than new build,” said Mr Pateman, “And the sheer volume of small projects and corresponding variety of building materials they require makes the merchant the obvious route for home improvement and refurb projects.”

Others shared this view and also maintained that RMI is not just enjoying a time lag before it follows new build more steeply downhill. In fact, if anything, it’s stabilising.

“Members are telling us that the second quarter was better than the first,” said British Woodworking Federation chief executive Richard Lambert, adding that the quality end of the RMI joinery market is looking particularly promising.

“Companies say they’re generally doing better with feature work, individual items rather than standard products,” he said.

Market still tough

This feedback, he stressed, has not given the BMF an unrealistically rosy view of RMI prospects. “There’s a natural temptation to clutch at straws, but we shouldn’t fool ourselves that things are still anything less than tough, with companies working month to month,” he said. “So I wouldn’t say we’re in recovery yet. Where we are though is perhaps at the beginning of the bottom of the market.”

The Timber Trade Federation took a similar perspective. “Our feedback suggests RMI and DIY are going comparatively well compared with housing generally,” said chief executive John White. “And a lot of garden-related products, such as decking and fencing, have been doing very well.”

There is also now a growing chorus calling on government to give the market a further boost out of recession and beyond by cutting VAT on RMI work to 5%, the level applied in several other EU countries after European finance ministers voted to allow the reduction last year.

Industry campaigns

Leading the charge is the cross-construction industry campaign Get Britain Building (GBB). Among its founders in February was the BMF which says the impact of a tax cut would be significant.

“The UK merchant trade has identified a VAT reduction on home improvement as the single most important thing government could do to re-energise construction,” said Mr Pateman. “It’s the easiest method [to use]; not a reduction in the rate charged on merchants’ or suppliers’ sales, but a change in the rate charged by bona fide tradesmen on final invoices to householders.”

Mr Lambert said the government will be reluctant to make the cut “unless the treasury is convinced they will gain an equal or greater revenue as a consequence”. But GBB says it is working up a groundswell of support.

“We may have to take a longer time-frame on VAT [than GBB’s other recommendations], but there’s evidence the message is getting through,” said Mr Pateman. “The 5% argument is now official policy of the Scottish government and Welsh Assembly, as well as major influencers like Manchester City Council. “

Repair and maintenance specialist Rok plc is also pushing for 5% VAT in its own campaign Repairing Britain (RB), signatories to which range from power tool maker DeWalt to the Scottish Building Federation. It includes a ‘Stop the Rot’ roadshow which is urging consumers and businesses to follow its action points:
• tell councils about disused and poorly maintained buildings in their area;
• encourage local businesses to keep buildings in good repair and energy efficient;
• sign RB’s Downing street petition for 5% VAT on repair work.

Preserving jobs

According to Rok Maintenance managing director Nigel Lemmon, the campaign is focused on preserving building jobs (and it says the cut could help save 250,000), but also aims to drive RMI up the political agenda long term.

“Government focus has traditionally been on new build, but increasing commitment to repairing and maintaining existing housing stock could have major cost and environmental benefits,” he said.

The government’s strategies for cutting UK carbon emissions are also seen as having short and long-term potential for shoring up and expanding the RMI market. The BMF questions its use of energy companies “in search of box-ticking, quick wins” to administer its carbon emissions reduction target (CERT), which entails these businesses offering discounts on products like insulation and energy-efficient boilers. And it is also critical of the consumer focus of the strategy, which has led to this business so far being driven largely through DIY rather than the trade/professional channels. But it still feels government policies, combined with consumers’ growing environmental concerns and desire to cut energy bills, will ensure “this area of investment in home improvement will grow strongly for several years”.

Energy grants

Some merchants and retailers are also reported to be looking to boost RMI trade by flagging up to public and trade customers the growing availability, variety and value of central and local government grants for improving building energy performance in the hope it will generate sales. The bulk of this cash is currently going on cavity and roof insulation and ‘renewables’ but, according to the Energy Saving Trust, the grant awarding organisations’ criteria for ‘insulation’ could also cover high energy-rated doors and windows.

Looking forward to the UK’s eventual economic upturn, albeit that construction industry organisations aren’t generally anticipating this now until at least late 2010, RMI is also expected to latch on to general recovery before construction.

“It is affected more rapidly by the state and feel of the overall economy so we’ll start to see things move there first,” said Mr Lambert. “Construction probably won’t follow for six to nine months.”

• To sign up to the 5% VAT campaigns go to www.getbritainbuilding.org and www.repairingbritain.blogspot.com.