Annual survey of UK structural timber markets - cti … Annual Survey of UK...2 ANNUAL SURVEY OF UK...

Annual survey of UK structural timber marketsMarket report 2016

Prepared by Egan Consulting

Issue 15 - October 2017

ANNUAL SURVEY OF UK STRUCTURAL TIMBER MARKETS 20162

The UK housebuilding market 2016

ContentsKey findings 2016 3

Continued growth forecast 4

Message from the Chief Executive 5

Housing starts continue to rise 6

Housing starts by country 6

Growth in timber frame 6

Timber frame manufacturing 7

Performance by country and region 8

Market breakdown by dwelling type 9

Building by tenure (public & private) 10

Housing market forecasts to 2020/21 11

Production capacity and utilisation of timber frame manufacturing 2016 to 2020 13

Achieving sustained growth 14

Estimated timber frame manufacturing sector size 15

Timber frame manufacturing - number employed estimates 15

STRUCTURALTIMBER ASSOCIATIONBuilding solutions in timber

Key findings 2016

UK housing starts up to 185580 4.4%

Timber frame housing starts up to 52705 8.7%

Housing starts in England up 4.4%

Housing starts in Scotland down -1.7%

Housing starts in Wales down -2.6%

Housing starts in Northern Ireland up 8.1%

UK housing starts by tenure • Private sector up 7037 5.2% • Public sector up 1853 4.5%

Timber frame housing share in the UK rose again to 28.4% • Timber frame share in England rises to 22.8% • Timber frame share in Scotland rises to 83.0% • Timber frame share in Wales stable 30.7% • Timber frame share in Northern Ireland grows to 17.4%

Timber frame including non-housing up to 55750 10.7%

Non-timber frame housing up to 132875 3.6%

3


Continued growth forecastOur sector has made good progress again during 2016 with volumes holding up and showing slight growth in market share over 2015. This year we have had more member companies than ever provide us with information contributing to the production of this report. Thank you to the forty three companies who took the time to respond, meaning that 41% of the members contacted replied. As our sector becomes even more competitive it is important that all STA member companies complete the information questionnaire, so that we can offer the very best intelligence, not only to our members, but to the wider industry. Once again, the responses provided by our members covered 50% of the total volume reported for the timber frame sector.

Confidence remains high for those companies reporting, with forecast volumes expected to grow to 88,000 by 2021. This represents an ambitious year-on-year growth rate for timber frame of circa 10%. It should be noted that the Construction Products Association is taking a very much more cautious approach, predicting growth rates of as little as 2% to 3%. Were that the case the 2021 volumes would be a more cautious 66,000 timber frame starts in that year

Skills shortages and the general uncertainty around Brexit continues as a cloud on the horizon, but at least in the short-term this is not denting the confidence in the numbers reported by member companies.

The 2016 Business Environment and beyond• As reflected in the 2015 commentary, the post referendum political and business environments remain largely unclear. Brexit discussion are as yet, not sufficiently detailed, to give a clear picture to business as to the future we face.

• This continues to impact on the construction environment and, with the tragic events surrounding Grenfell, the rules around many aspects construction and the management of buildings is under scrutiny and debate.

• The value of sterling remains a concern, with a range of predictions regarding its short to medium term value ranging from sub one euro to the pound to 1.18 at best. This uncertainty is also reflecting on the sterling dollar rates with values ranging from the pound reporting a $1.17 to the dollar to a potential circa $1.4 dollars to the pound during 2018.

• The exchange rate will therefore continue to have an unpredictable impact on input costs, which will in turn impact on market confidence.

• The Timber Frame sector is ready and willing to lay down the necessary capacity to meet current and predicted demand, expected to grow to over 94,000 units by 2021. However, it is expected that the political and business environments will need to improve through greater clarity regarding the future of UK plc to realise this potential.

However ……….all is not lost• The momentum created in our sector continues, and as illustrated in our key findings above, the will is there to be creative in design, engineering, manufacturing and the delivery of truly exceptional products to our customers.

• The benefits of timber frame continue to answer so many of the issues that concentrate the minds of government and public procurement of housing. Speed of build, environmental impact, life-time energy and cost performance make the compelling case for wood. All of these remain constant and increasingly underpin our ability to grow our share of the market for structural building applications in the UK market.

• Whilst the Farmer Review raises all of the issues that the construction sector suffers from, the timber frame sector by its very nature becoming an increasingly off-site manufacturing system, has the ability to address many of the issues head-on. We may not be able to control the external influences on our sector, but we can deliver continued improvement in delivered quality, service and improved productivity.

Forecasts to 2018UK total housing starts forecast Timber Frame housing starts Probable Optimistic 2017 192,746 (+3.7%) 55,606 (+5.5%) 63,606 (+20%)2018 199,600 (+3.6%) 60,042 (+8.0%) 71,042 (+11.7%)2019 199,828 (+0.01%) 64,750 (+7.8%) 80,329 (+13.0%)2020 203,120 (+1.6%) 68,777 (+6.2%) 84,777 (5.5%)If the ‘Probable’ estimates predicted are to be realised then timber frame will hold a 33.9% share of the market by 2020.

4


Message from the Chief ExecutiveI reported last year that I found myself making this introduction in one of the most exciting times in the history of the structural timber frame industry. At this moment, all roads seem to lead to structural timber frame as the building method of choice as the results of this report indicate. A year of consolidation, where we have seen our market share rise again to 28.4%, a more modest growth of a full percentage point over 2015 in a growing market, is impressive enough but if we add to this the traditional timber frame in housing figure and the fact that other sectors of the construction market are now considering the use of structural timber frame and other structural timber systems, i.e. CLT, Glulam and SIPs, it is obvious the whole sector is ‘on a roll’.

Housing continues to be a political hot topic with national and regional Government citing it as the number one priority. The recently released Farmer Review confirms this and introduces the new terminology ‘pre-manufacture’ used throughout the document, to replace offsite, prefabrication or modern methods of construction, emphasising that our form of construction is now in the spotlight and very much on the rise.

This opportunity requires the structural timber frame sector to unite as one, collaborate with all our stakeholders and totally integrate our design, manufacture and erect offer - this is what the Farmer Review recommends.

The three major timber related trade associations (TTF, BWF & STA) have come together under the CTI (Confederation of Timber Industries) to ensure this joined up approach is achieved with TTF leading on sustainability, the BWF on skills and the STA on value and growth. In addition the STA is working closely with both TRADA and the TRA, where appropriate, so as not to duplicate resource and share knowledge, further demonstrating the sector’s desire to col-laborate.

The growth in market share is expected to continue to rise as this report indicates. Both the NHBC and LABC are reporting unprecedented levels of housing starts in structural timber frame and this looks likely to increase. Scottish Government is working with SFHA, Homes for Scotland, Sottish Innovation Centre and the STA in its effort to build 50,000 affordable homes in the lifetime of the current Parliament. In addition, STA has been working with the UK Governments All Part Parliamentary Group (APPG) for Wood and the Welsh Government in promoting the benefits of timber frame for house building and the sectors ability to deliver any additional volumes required.

As indicated throughout this report, structural timber frame is quickly becoming the building method of choice and therefore, the opportunity of a lifetime is upon us and it has to be grasped in the lifetime of the opportunity - NOW!

Andrew Carpenter, Chief Executive Structural Timber Association

5


The UK home building market to 2016Housing starts continue to rise2016 proved another successful year for house building in the UK, with an 4.4% increase over 2015 being recorded in housing starts. Similarly, England too saw an increase of 4.4%, Wales fell back slightly by 2.6%, Scotland by 1.7% and Northern Ireland, continuing its recovery, recorded year on year growth of 8.1%.

This produced the fifth year in succession of growth from the post recession low of 2012, when UK housing starts were recorded at 114,000. Overall starts at 185,580 are 71,580 up from that low point. Clearly there is much ground to make up, but as referred to later the industry is poised to deliver any future demands placed upon it.

Chart 1 below tracks these changes.

Chart 1 - UK housing startsActual 2005 - 2015SOURCE: ONS

000s

Uni

ts

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

300

225 231 234

142

114

139 137 126149

170 177 186250

200

150

100

50

0

Housing starts by countryThe number of housing starts in England remained at 83.1% of all UK starts during 2016. As referred to in or 2015 report, this is a trend that shows no sign of changing. Chart two illustrates this continuing trend.

Chart 2 - UK housing starts by countryActual 2008 - 2016SOURCE: ONS / STA

000s

Uni

ts

2008England

2009

200

150

100

50

02010 2011 2012 2013 2014 2015 2016

Wales Scotland N Ireland

Housing starts in Scotland fell marginally, showing a fall of 1.7% over 2015. However, the share of timber frame grew strongly to 83% of all housing starts in Scotland.

Chart 3 illustrated the 2016 changes in volumes across all of the countries in the UK.

Chart 3 - % Change in housing starts by country2016 - 2015SOURCE: ONS / STA

%

England

4.5%

11.4%

5.0%

Wales

-2.6

Scotland N Ireland UnitedKingdom

-1.7%

20%

10%

0%

-10%

The growth in starts for England continues, and as the largest proportion of the total market, influences the overall picture in showing over growth for 2016, despite a small fall in both Scotland and Wales. Northern Ireland continued its recovery from a very deep recession in housing since the banking crisis. However the overall market in housing has slowed significantly as we proceed through 2017. Here the uncertainty around Brexit is most pronounced.

Growth in timber frame The timber frame sector has largely had a year of consolidation, with overall market share seeing a 1% increase. In volume terms however, timber frame as a building system grew by 8.7% to an impressive 52,705 starts.

Chart 4 - % Change in new housing2015 - 2016SOURCE: ONS / STA

Total AllHousing

Non-TimberFrame

TimberFrame

8.7%

3.6%

5.0%

0% 10% 20% 30%

It is worthy of note that the 2016 performance of timber frame is slightly ahead of its previous high, of 51,000, reported for 2007.

The industry is naturally concerned about the possible impact on raw material input price inflation, largely as a result of exchange rates, in the immediate future.

6


Chart 5 - Timber frame % market share of new housing 2008 - 2016SOURCE: STA

%

24.5

5

10

15

20

25

0

30

22.8 21.7 22.8 23.621.8

24.827.4 28.1

2008 2009 2010 2011 2012 2013 2014 2015 2016

Whilst it is aware of the significant opportunities opening up to timber frame, the lack of clarity around the direction of our political futures vis-à-vis Europe, is nonetheless unsettling. Government are to be encouraged to clarify the impact on business as soon as possible.

39.5

141.

7

29.7

114.

3

34.3

139.

2

34.1

138.

3

32.3

125.

3

37.0

149.

9

43.5

169.

9

48.4

178.

9

52.8

185.

6

Chart 6 - Timber frame impact on total starts2008 - 2016SOURCE: ONS / STA

2008

50

100

150

200

250

02009 2010 2011 2012 2013 2014 2015 2016

As these volumes grow and timber frame takes a larger slice of the overall housing market in the UK, it is imperative that continued efforts are made to promote the benefits derived to the total supply chain from client to user.

Our ability to respond to demand by ‘turning on capacity quickly’ is a key competitive advantage that is being ably demonstrated by the data collected from those responding to the annual survey.

Chart 6 above illustrates the relative rate of growth for Timber frame against other materials. As reported for 2015, the sector can expect increased effort from the traditional builder to hold off the Incursion of timber frame into the English market in particular.

We reported last year that there is growing input price pressure on our sector, leaving the industry very exposed to a slowdown in demand as financial markets tighten lending against the additional backdrop of the affordability index worsening through 2015 and 2016.

Timber frame manufacturingTimber frame manufacturing continued to grow during 2016, with 52,705 starts reported, beating the previous high of 51,000 reported for 2007.

Chart 7 - All timber frame development by category2005 - 2015SOURCE: ONS / STA / NHBC

000s

Uni

ts

20081 to 2 Storey

2009

454035

202530

51015

0

50

2010 2011 2012 2013 2014 2015 2016Over 2 Storey Non Housing

2016 saw a strong year for the building of one and two-storey homes, with apartment blocks and non-housing applications falling slightly.

As referred to earlier, 2016 appears to have been a year of consolidation, with Timber continuing to make inroads by growing the overall volumes of activity along with breaking through the previous high water-mark for the number of units produced.

Whilst the number of starts for buildings of more than two storeys has fallen back from 28.8% of all starts in 2015, to 20.7% for 2016, it is still just ahead of the 2015 level reported of 20.4%

Chart 8 highlights the trend.

Chart 8 - Proportion of timber frame units by category2008 - 2016SOURCE: ONS / STA / NHBC

% U

nits

Prod

uced

20081 to 2 Storey

2009

80%70%60%

40%50%

10%20%30%

0%

90%

2010 2011 2012 2013 2014 2015 2016Over 2 Storey Non Housing

Non-housing applications have fallen significantly from over 13% in 2015 to 5.7% for 2016.

The impact of the changes by category reflected in chart 9, below bear this out.

7


The critical point of note for chart 9, is that ‘over two storey’ and ‘Non-housing’ bars are a relatively small proportion of the total numbers reported resulting in small changes show as significant percentage changes in any one year.

None of the respondents to the questionnaire have reported out of the ordinary movements in either over two or non-housing activities.

15.5%

-18.7%

-54.5%

9.6%

Chart 9 - % Growth of timber frame by category2016 - 2015SOURCE: ONS / STA / NHBC

1 to 2 Storey

% G

rowt

h

Over 2 Storey Non Housing Total

10%

70%60%50%40%30%20%10%0%

-80%

20%30%

Performance by country and region2016 has continued to demonstrate how resilient the market for timber frame applications has become, by once again recording over volume growth. Whilst recognizing the small falls for both Scotland and Wales, the underlying performance for timber frame remains very strong. In Scotland timber frame has increased its overall volumes and grown market share to an outstanding 83% of all starts in 2016. At over four in every five starts in that market, timber frame is clearly the default building system in Scotland.

Chart 10 - Timber frame housing starts by country2012 - 2016SOURCE: ONS / STA

000s

Uni

ts

England

35.2

14.1

2.1 1.3

Scotland Wales N Ireland2012

30

25

15

20

5

10

0

35

40

2013 2014 2015 2016

It is encouraging to note that for 2016 continued inroads to the English market has been made by timber frame, with volumes growing by 2679 units and growing market share to 22.8%.

Although recording relatively small volumes Northern Ireland saw timber frame units grow to 1293, an increase of 194 on 2015 levels or 17.4% of all starts.

Only Wales showed a small fall, with 2094 starts being recorded, down from 2236 in 2015.

Chart 11 below illustrates this point.

Chart 11 - Timber frame % share of each country’s starts2012 - 2016SOURCE: ONS / STA / NHBC

% S

hare

England Wales Scotland N Ireland

10%20%30%40%50%60%70%80%90%

0%

22.8%

83.0%

30.7%

17.4%

Chart 12 illustrates the north v south divide in purely volume of starts. This statistic just illustrates the population drift to the South opening up a split of circa 60/40 in favour of housing starts to the south of the Midlands.

Chart 12 - 2016 Housing starts England North v SouthSOURCE: NHBC

South88411

or 57%

Midlands & The North65869or 43%

Chart 13 breaks this regional split further by taking the NHBC regional registrations as an indicator of Timber frame housing activity.

Overall timber frame starts are shown as being 19,923 in the South and 15,253 for the North.

8


Chart 13 - 2016 England housing starts Split by regionSOURCE: NHBC

London 20%

South East 12%

North East 5%

North West 10%

Yorkshire &Humberside 7%

West Midlands10%

East Midlands9%

Merseyside 2%

South West 13%

Eastern 12%

This survey has again, as it does every year, rely upon data supplied by a number of bodies, including the Communities and Local Government department (DCLG), the NHBC and other industry commentators including the Construction Products Association (CPA) who have informed elements of the analysis through its recently published ‘Construction Industry Scenarios 2017-2019’.

This analysis provides a solid basis from which to identify and predict trend in the industry. The information contained should therefore be considered as a ‘best estimate’ distilled from what information is available.

It should also be noted that this year’s survey has strengthened the data base as the number of contributors again increased, with hard data being collected from some 35 respondents, 33% of those surveyed. An additional eight companies contributed through discussion around the questions asked in the survey. Overall then, we have had input from 43 companies or 40% of those surveyed. These businesses account for the manufacture of circa 51% of all of the timber frame activity reported by STA member companies.

This has provided a strong baseline from which to estimate the overall market, so we are confident that the overall volumes and market share are an accurate reflection of the timber frame market in 2016.

Market breakdown by dwelling type 2016 has carried on the trend of the last two years, with another year of growth in total volumes. Chart 14 illustrates the overall trend and the changes for the year 2015. A notable change in mix during 2016 has been the increase in the number of detached houses being built up 10,800 or 23% over 2015. Detached housing starts have therefore doubled in volumes since 2010. Semi-detached volumes have also increased significantly, recording 46,800 starts in 2016, up from 36,500 in 2015. An increase of 28%. To balance these increases terraced starts have fallen 10,000 units, or 24% and flat development fell back slightly by 2,100 or 4.2%

Chart 14 - UK housing starts by dwelling2012 - 2016SOURCE: ONS / NHBC

000s

Uni

ts

DetachedHouse

29.5

1.5

25.027.9

0.7

38.9

DetachedBungalow

2012

60

40

20

0Semi

HouseTerrace Attached

BungalowFlats

2013 2014 2015 2016

The ‘drift’ towards detached homes as reported last year continued apace, with semi-detached building showing similarly strong growth. The changes in percentage terms for bungalows, both detached and semi-detached whilst large, are such a small proportion of the total volumes that they make little impact to the overall numbers.

Once again, when we examined timber frame in the above mix we found that the overall volume of units grew faster that the overall house building sector, therefore accelerating the growth in timber frame market share. Whilst it is appropriate to counsel caution when looking at timber frame growth rates in comparison to overall market volume growth, it is encouraging to note that during 2016 the sector once again saw very substantial results.

Timber frame detached houses turned in a very strong performance increasing by 31.6% over 2015 and more than doubling in volumes since 2012. Semi-detached timber frame housing starts produced as similar result, with 14,200 starts or 41.3% over 2015, again more than double that of 2012. Timber frame terraced housing starts were effectively static, reporting a small fall of 3% and apartment building in timber frame paused after the very strong surge in 2015 to 9,600. A year-on-year fall of 28.7%

Chart 15 highlights the timber frame trend by house type 2012 to 2016.

Chart 15 - Timber frame units by dwelling type2012 - 2016SOURCE: ONS / NHBC

000s

Uni

ts

DetachedHouse

8.5

0.4

5.9 7.1

0.2

7.2

DetachedBungalow

2012

15

10

5

0Semi


BungalowFlats

2013 2014 2015 2016

9


The trend confirms that timber frame has once again outpaced the overall market, by growing at twice the market rate; 8.7% timber frame growth to 4.4% market growth.

Chart 16 - Timber frame market share by dwelling type2012 - 2016SOURCE: ONS / NHBC

% S

hare

DetachedHouse

31.0%

43.7%

30.3% 32.9% 30.7%19.9%

DetachedBungalow

2012

40%

50%

20%

30%

10%

0%Semi


BungalowFlats

2013 2014 2015 2016

Chart 16 indicates the continued trend growth across all property types. In the case of flat development the 2015 surge has fallen back more in line with recent year-on-year growth. In that case the 2016 share for apartments at 19.9% is still ahead of that recorded for 2014 at 19.4%.

Building by tenure (public and private) Housing starts across the UK for both the private and social housing sectors are shown in chart 17, indicating the split of housing starts across the UK for both the private and social housing sectors.

Chart 17 - UK housing split by countryPrivate v SocialSOURCE: ONS / NHBC

EnglandSocial 21%

EnglandPrivate 62%

NorthernIrelandSocial 1%

ScotlandPrivate 8%

Scotland Social 1%

Northern IrelandPrivate 3%

Wales Social 1%Wales Private 3%

This chart illustrates the huge impact that English housing starts has on the total UK market.

It also highlights the opportunity the English market provides to timber frame, making continued inroads through volume growth a real imperative in growing market share.

It will be interesting to note how these proportions change as the expected increase in the building of social housing kicks over the coming years.

Chart 18 splits housing starts by house type.

Chart 18 - Overall UK housing split by house type2016SOURCE: ONS / NHBC

Flats/Maisonettes 26%

DetachedHouses 30%

Semi-DetachedHouses 25%

DetachedBungalows 1%

AttachedBungalows 1%

TerracedHouses 1%

The following two charts 19 and 20 show housing starts split for both private and social housing respectively.

Chart 19 - 2016 Private sector timber frame housingSplit by house typeSOURCE: NHBC

Flats/Maisonettes 13%DetachedBungalows 2%

TerracedHouses 17%

DetachedHouses 45%Attached

Bungalows 0%

Semi-DetachedHouses 23%

10


Chart 20 - 2016 Affordable sector timber frame housingSplit by house typeSOURCE: NHBC

Flats/Maisonettes 32%

DetachedBungalows 0%

Terraced Houses 26%

Semi Detached Houses 37%

Detached Houses 3%

AttachedBungalows 2%

The numbers are optimistic, but uncertainty is the ‘elephant in the room’ We reported last year that mixed messages had been received when looking at the optimism that individual companies demonstrated towards the next three years or so. This trend continues through 2016, on the one hand positivity about the current real levels of demand, but worry and lack of certainty because of the lack of clarity about the future economic performance of UK plc. The sector is only too well aware of the impact on construction that results from a cooling in the economy. The continued issue of all things Brexit is not helping the confidence levels of decision makers and risk takers in the sector.

It is true to say that, looking back at recent years performance, businesses involved in the Structural timber arena have seen much improved business performance, with ready demand for its services. It is not unusual to find such contrasting sentiments in the marketplace, as it has been a general rule that as real confidence grows, businesses project this into the future. The uncertainty around the future translates into ‘well we are dong ok at the moment, but we are really not sure about next year and beyond’

The commentators on the industry are also taking a cautious line, citing a number of macro economic indicators and the evolving government policy, not least around Brexit remaining vague at best, as reasons to predict a sluggish future through to 2020. The Construction Products Association are predicting overall growth in housing starts of 7.7% over the three years 2017 to 2019. This projection suggests that housing starts will not break the 200,000 mark until after 2021. In contrast, the Office of National Statistics is suggesting that this threshold will be reached by 2019.

In looking at 2016 in isolation, it was clearly another excellent year as

housing starts topped out at 185580, with timber frame enjoying a sterling year with starts peaking at just short of 52705.

Timber frame has once again accounted for a significant share of the overall growth in housing starts reported and for 2016 the underlying rate of growth was 8.7%. There were an incremental 6660 starts of which timber frame accounted for 4225 or 63.4% this is a very encouraging result and should serve as a real benefit to further promoting timber frame as a building method.

Chart 21 - UK housing starts 2008 - 2016 Actual & forecast to 2020SOURCE: ONS / STA / CPA

000s

Uni

ts

142

125

140160180

240

100

200220

260

2008

114

2009

139

2010

137

2011

126

2012

149

2013

170

2014

177

2015

185

2016

189

2017

196

2018

199

2019

203

2020

The issue of confidence has resulted in a sector that sees current order books looking healthy, but business owners/commentators are reluctant to commit with any certainty to anything beyond the remainder of 2017. That said the sector, whilst cautious is forecasting growth of 26.7% from 2016 through to 2020, with volumes predicted to reach 66,777 units in 2020.

Chart 22 - Relative growth of timber frame & other methods of construction2005 - 2016SOURCE: ONS / STA / CPA

Non-

Tim

ber F

ram

e - 0

00s U

nits

Tim

ber F

ram

e - 0

00s U

nits

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

160140

100120

806040200

180200

160140

100120

806040200

180200

Non-Timber FrameTimber Frame

Timber frame growth was 8.7% year on year 2016 over 2015, recording 52705 from 48460 in 2015, with non-timber frame growing by just 2% in the same period i.e. 130,230 to 132,875. Chart 22 illustrates the longer-term trend from 2008 to 2016 inclusive.

11

Housing market forecasts to 2020/2021


The relative confidence in the growth of timber frame to non-timber frame becomes more evident when viewing the forecasts predicted by STA members, compared to other industry commentators. Whilst it is clear that forecasts are simply that! i.e. a best guess, when viewed against the trend over recent years including the immediate post-crash market; then timber frame is trending positively and gaining market share.

Chart 23 illustrates the opposing views in predicted growth trends for timber frame and other building materials.

Chart 23 - Development of timber frame and other methods of home building2008 - 2016 & Forecast to 2020 - probableSOURCE: ONS / STA

Units

000

s

Units

000

s

2008 2011 2014 2017 2020

Other MethodsTimber Frame

50

30

40

20

10

0

60

70

120

100

80

60

40

20

0

140

160

Given the uncertainty referred to in the report we have added chart 24 to illustrate further the range of positions on forecasting through to 2020. It shows the best position reported by STA members and compares that to the CPA trend for housing starts ‘CPA Construction Industry Forecasts 2017-2019’.

Chart 24 - Forecast trend options2017 - 2021SOURCE: STA / CPA

Units

in £

000s

2016Sales in units forecast growth 2016 - 2021

2017 2018 2019 2020 2021

5270563606

55606 60042 63750 65777 66000

7104280329 84777 88544100

60

80

40

20

0

Sales forecast tracking CPA market predictions - Cautious

The apparent confidence of STA member companies continues to be over-shadowed by the point reported for 2015 including: • The UK position on Europe

• The impact of sterling’s fall and its impact on the competitiveness of the timber frame sector

• Rising import costs

• The growing possibility of interest rate rises

• The impact of ‘help to buy’

• The rate at which social housing starts grow as RSL’s roll out a programme of renewal.

The value of the pound has not fully recovered its losses from 2015 and is currently trading at circa mid $1.35, although during 2017 it has range from a low of $1.17 with a possible high of circa $1.40 during 2018. Similarly the sterling euro rate remains in the €1.08 to circa €1.15 during 2017. Such volatility makes decision making difficult and this is not predicted to change until UK Government policy becomes clearer.

That said, chart 25 below continues to record year on year growth, which amplified the points made about apparent contradictions in the messages we get fed from the marketplace.

The STA have continued to work promoting Structural Timber to both UK Government, The Welsh Assembly, Scottish Government, The Northern Irish Assembly along with both the private house-builders and RSL’s. This work has continued to produce positive results for our members and plays a significant part in supporting the growth reported by member companies.

It will be ever more important that STA members complete and return the information requests to inform the production of this report. The higher the proportion of companies responding the better the over quality and reliability of the data is.

Chart 25 - Timber frame % market share of new housing 2005 - 2016SOURCE: ONS / STA

% S

hare

of N

ew H

ousin

g

5%

10%

0%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

19.7%20.7%

21.9%

24.5%22.8%

21.7%22.8% 23.6%

21.8%

24.8%

27.4%28.4%

We referred to the most recent industry report commissioned by the UK Government and produced by Mark Farmer in our 2015 report; ‘Modernise or Die’, published in October 2016 largely identifying the same issues as its predecessors, namely:

• Low productivity

• Low predictability

12


• Structural fragmentation

• Leadership fragmentation

• Low margins

• Dysfunctional training funding and delivery model

• Workforce size and demographics

• Lack of collaboration and Improvement culture

• Lack of R&D and investment in innovation

• Poor industry image.

As we reported last year these issues remain pertinent to our sector and provide an ongoing opportunity for structural timber. Through innovation in off-site manufacture, driving productivity and enhancing the skills sets of those employed in it, structural timber can truly sit centre stage in the UK housing marketplace.

Production capacity and utilisation of timber frame manufacturing 2016 to 2020The industry is managing to deliver any demand put upon it through careful management of its existing capacity. This will continue to be the case through the next three to four years as businesses assess what is in their best interests as the prevailing economic conditions unfold. Rather than reflect the usual high level single point forecast we are reflecting the uncertainty in the wider economy by proposing two but there are a range of possible volumes predicted for the next three to four years.

5270

5

6360

6

5481

3

7104

2

5711

5 8032

9

5974

3 8477

7

6249

1 8854

4

6536

5

Chart 26 - Sales in units forecast growth2016 - 2021 - Two scenariosSOURCE: STA / CPA

2016 2017 2018 2019 2020 2021Sales in units forecast growth 2016 - 2021 CPA Trend

Chart 26 shows the predicted Timber Frame housing starts 2017 to 2021, using the 2016 actual as a baseline. It compares these forecast numbers with Construction Products Association (CPA) predictions through to 2019 and extrapolated to 2021.

It is clear to see that taking the wider economy and the factors impacting on it results in a much more cautious approach to forecasting. For example, if we take the STA member company data and assume that the sector will deliver the CPA levels of activity in 2017, then we would see a growth rate in timber frame in 2017 of circa 4%, rather than the predicted 20% reported by STA members.

At best these numbers give added weight to the uncertainty regarding the future and the consequences for the market resulting from the issues referred to in this report.

With this in mind we have taken the options above and provided two possible trends, chart 27 below showing a ‘possible’ outcome assuming that the STA member company predictions are close to realised, suggesting sales of over 88,000 units from a capacity of 94,000 in 2021.

Chart 27 - Timber frame Production v Capacity2015 - 2016 Actual & 2017 - 2021 forecastSOURCE: STA / CPA

2015 2016 2017 2018 2019 2020 2021Capacity in units Production Estimates based on CPA projections

5820

048

400 6331

452

705 74

093

6360

655

606 80

134

7104

260

042

8752

480

329

6375

0

9096

984

777

6577

7

9440

288

544

6600

0

Chart 28 suggests the more ‘probable’ result of circa 66,000 timber frame housing starts in 2021 from a capacity of 82,500. In both cases we have assumes an industry standard capacity loading of 80%. At this level businesses are able to respond to spikes in demand without placing their manufacturing capability under undue pressure.

There is clearly a disconnect arising out of the differing views of the medium-term future. The businesses reporting, continue to see a positive picture based upon current demand profiles. The CPA forecasts are based on the wider economic conditions, current and anticipated, as the issues of Government monetary policy (interest and exchange rates) and the those of Brexit unfold over the next year to eighteen months.

6950

7

5560

6 7505

2

6004

2 7968

7

6375

0 8222

1

6577

7 8250

0

6600

0

Chart 28 - Forecast capacity2017 - 2021SOURCE: STA / CPA

2017 2018 2019 2020 2021Capacity at 80% loading Forecast production

The capacity utilised in 2016 was 82%, confirming that the sector is catching up on its installed capacity. We have therefore used 80% as our reference loading in predicting decisions to be made in managing capacity over the next four years

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The balance between available capacity and the sectors ability to respond is a sensitive balance between the timing of capital investment decisions, their cost and the ultimate profitability of the sector. The feedback from STA member companies highlights this issue as one of major concern.

This balance is made all the more important when considered along with the comments of earlier regarding the major drivers of economic activity e.g. exchange rates and the potential to ‘import cost’ into the sector, with the spectre of Brexit a constant ‘stone in the shoe’

Whilst companies cannot individually change those external factors that weight heavily upon them, they can act to optimise the performance of their own internal processes, the relationship they have with both clients and suppliers and through the STA influence the decision-makers at a political level to support our industry.

We can in part help ourselves by adopting all of the most appropriate tools to ensure we are as productive and consequently as profitable as we can be. As we reported last year, we would encourage member companies to continue the drive to upskill at all levels in our businesses and to seek out and take up the best practice tools and techniques of LEAN manufacturing and construction to drive these productivity improvements.

As we did last year, once again we refer to the most recent commentary on the construction sector, The Farmer Review and it makes compelling reading. It identified the areas where the construction sector can/must improve. We commend this approach and strongly believe that the businesses who are first to positively respond to the challenge, will in turn create for themselves a more productive, profitable and therefore sustainable business in these uncertain times.

The table and Chart 29 illustrates the impact of a changing mix of the companies returning their survey questionnaires. In 2015 we had 123 companies included in the industry size chart. For 2016 this has grown to 173 businesses, but this year the size is skewed towards smaller businesses.

Company Size - Units2015 2016

59341515

123

0 - 99100 - 399400 - 999Over 1000TOTAL

94422215

173

The impact of a larger number of small to medium size companies contributing to the total picture has suggested that these played a larger part in growing overall volume sin 2015 than might have been expected.

Whilst scale provides the opportunity for greater cost efficiency, an industry

sector with a larger small to medium sector (SME’s), has the potential to produce higher volumes more quickly to the market, ensuring that the timber frame sector can respond very quickly to growing demand for off-site manufactured, fast built, energy efficient, high performance homes.

Chart 29 - Percentage of total production output in each output band2012 - 2016SOURCE: STA

% o

f Man

ufac

ture

rs0 - 99 100 - 399 400 - 999 1,000 +

2012

Size Range of Manufacturers (Units Produced)

80%

50%

10%

20%

30%

40%

60%

70%

0%

90%

2013 2014 2015 2016

Chart 30 re-enforces the point that a small number of larger businesses delivers the loins share of the homes to the market. For 2016 companies producing over 1000 units per annum, amounted to 8.7% of the total number included in the survey, but produced over 54% of the total recorded output in timber frame homes.

Chart 30 - Percentage of firms in each output band2012 - 2016SOURCE: STA

% U

nits

Prod

uced

0 - 99 100 - 399 400 - 999 1,000 +

2012

Size Range of Manufacturers (Units Produced)

20%

40%

60%

0%

2013 2014 2015 2016

Achieving sustained growthOnce again we celebrate an excellent performance by the sector in 2016, having grown both volumes produced and increasing market share to 28.4%.

Companies reporting their performance for 2016 has increased to over forty and the numbers included in the total survey has increased to 173, up from 123 in the 2015 report. The increase in the number of companies contributing to this year’s much improved response to our request for help, improve the quality of this report.

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The companies who did respond account for 50.2% of our business, making it difficult to ignore the optimism being shown by the sector.

As with 2016 the major concerns facing the industry remain as for 2015. Exchange rates are still pretty volatile, demand is no less vague in the medium term and Brexit remains unresolved. That along with markets responding to a world of increasing uncertainty, making any long term strategic planning challenging. So the list remains as mentioned on a number of occasions throughout the report, namely:• The impact of Brexit and post referendum sentiment both at government and from the business community

• The effect on sterling for both of its major currency partners (the $ and the €)

• The lack of appropriate skills in the industry

• The on-going challenges to construction outlined in yet another industry report, the Farmer Review

• The risks of imported cost into the sector just as it is regaining traction in the overall market

• The political backdrop on the global stage creating uncertainty in the global financial markets.

To offset all of the above the sector ahs advantaged unmatched by any other construction sector in terms of the points made earlier:

• The environmental credentials of ‘wood’ it captures CO2 as it grows, its processing releases relatively small amounts back into the environment

• The speed of build to wind and watertight

• The whole life energy performance for both the environment and the consumer

• An industry sector that is quick to respond and can add capacity relatively rapidly as demand grows.

In addition the Structural Timber Association plays a major role in the advocacy of timber frame and engineered wood products (EWP) in the market place. It engages enthusiastically at every opportunity with government departments and is increasing invited to participate or comment on the future of construction.

As reported last year the improvements in the provision of technical information, including bulletins, advice notes, practical guidance such as ‘Site Safe’ and design and build technical documents are answering the information needs of many and differing skills of those engaged in the sector.

The work of the STA is making a real difference to the sector as it strives to amplify the professional way in which member companies go about their business, through encouraging and persuading clients to only use ‘STA member companies’ for their projects.

The STA, as reported last year is working closely with British Woodworking Federation (BWF) and the Timber Trades Federation (TTF), under the umbrella of the Confederation of Timber Industries (CTI), to act more effectively as a single voice in promoting the further use of wood based products in the construction industry. This is clearly to be welcomed and speaks volumes for the benefits of partnering and collaborative working.

Estimated timber frame manufacturing sector sizeFor 2016 we have attempted to indicate the overall size of the manufacturing capability in terms of revenues. Chart 31 indicates values from 2016 through to 2021.

Chart 31 - Predicted revenues for the timber frame manufacturing sectorSOURCE: STA

200

600

0

400

800

1000£0

00’

1200

2016 2017 2018 2019 2020 2021

These estimates are based on the sector growing in line with STA member company returns to the annual survey.

As with our earlier comments these estimate are more ‘possible’ than ‘probable’.

Timber frame manufacturing - number employed estimatesWe have similarly estimated the numbers employed in the sector, focusing only on direct manufacturing. This take no account of the wider jobs created or engaged in the total supply-chain from forest to building/ construction finishing trades.

Chart 32 - Number of employeesSOURCE: STA

1000

3000

0

2000

4000

5000

6000

7000

2017 2018 2019 2020 2021

As with revenue estimates above, we note the same conditions.

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Head officeStructural Timber Association The e-Centre Cooperage Way Alloa FK10 3LP

t: 01259 272140 f: 01259 272141 e: [email protected] w: www.structuraltimber.co.uk

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