The construction sector – the tail that wags the dog?

Many merchants are feeling the pinch, that much seems clear. But is there hope on the horizon?

We spoke to a plumber at the weekend who was taking calls from his merchant ‘just asking if he needed anything’. His supplier, previously rushed off their feet, could fit in a delivery just about whenever our man needed it.

Whilst you should never generalise from a sample of one, many amongst us will admit to some nervousness about the trading times ahead.

Of course, it’s not all doom and gloom, some of our bigger customers admit to feeling quite aggressive about the challenges ahead. They’re certainly not pulling in their horns in difficult times. When times are tough, the well-organised come out on top. Having the best management information at your disposal is one way you can set yourself apart from your immediate competition. If you know where you are, you can make better informed decisions about where you want to get to.

This is why we’ve spent so much time recently creating the best toolset for Business Information in our marketplace. [Small plug: speak to one of our Sales Team if you want to know more.]

Anyway, back to the theme of this piece – could the construction sector be the tail that wags the dog? The dog being The Economy? As the Builders’ Merchants News recently noted: “Property transactions are key drivers of the repair, maintenance and improvement market which is the main thrust of most builders merchants' business.” Could the housing sector itself be a key driver for the rest of the economy? If not a driver, it’s a tangible measure of the health of the wider economy.

“Range of options”
Chancellor Alistair Darling is said to be considering a range of policy options. Treasury officials say nothing has been agreed, but it is understood one of the options they are considering is to allow people to defer payment of stamp duty – which is considered more likely than temporarily suspending the tax altogether. There is a precedent for this – the Conservatives did the same during the 1991 recession.

Currently, people buying properties for between £125,000 and £250,000 pay 1% in stamp duty at the time of sale, rising to 3% for those spending more than £250,000, and 4% for homes worth more than £500,000.

A temporary deferral would allow house buyers extra time to pay the tax while the government would not lose out on the revenue altogether – last year it raised £6.5bn from stamp duty.

Risk of tinkering
John Stewart, chief economist at the Home Builders Federation, told the BBC he did not think deferring stamp duty would have much effect – but backed a ‘holiday’ for first-time buyers altogether for a fixed period.

Balanced against the urge to give the housing sector a helpful nudge, is the recognition that it was previously overheated and prices needed to come down to become more affordable to first time buyers.

What happens next?
The truth of course, is that none of us knows, but the fact is that much of the economy is driven by the health, or otherwise, of the housing market. Our feel-good factor is very closely linked to the perceived wealth of the value of our homes. We’ve got ourselves into a place where the housing market is seen as a barometer for the whole economy. The government has to get it right. Fortunately for us, the construction sector should benefit from the government’s need to boost the housing market.

Unfortunately for us, floating a few ideas around for comment just leaves the market uncertain, and ripe for speculation, in the short term. In effect these managed ‘leaks’ do just the thing we need to avoid, dampening the market further, in expectations of change. As the BBC put it recently: “Buyers thinking about a purchase now might sit back and wait to see whether the policy materialises.” Interesting times ahead for the construction sector.

Links
http://news.bbc.co.uk/1/hi/business/7544144.stm

http://www.buildersmerchantsjournal.net/news/news.asp?id=5401

http://www.ft.com/cms/s/0/51ca5a30-634e-11dd-9fd0-0000779fd2ac.html