The construction industry entered 2023 with a 7% increase in nominal value added and a 6% increase in nominal gross output compared to the previous year. However, the outlook for 2024 is less optimistic, with a slowdown in construction hiring and several challenges looming on the horizon. This article explores the primary factors driving the hiring slowdown and the impact it has on the industry's ability to meet project demands. We will also discuss strategies that construction companies can employ to mitigate the effects of this slowdown.



Primary Factors Driving the Hiring Slowdown

1. Economic and Political Turmoil: The continued fallout from the economic and political turmoil since 2022 has led to a significant decrease in private sector output across commercial and residential markets. This lack of demand has resulted in a reduction in construction activity, which in turn has led to a slowdown in hiring (Source: "We may be approaching the end of a particularly turbulent and damaging few years but the outlook for 2025 is still full of obstacles and challenges.").
2. Lack of Counter-Cyclical Public Sector Stimulus: The absence of counter-cyclical public sector stimulus to offset the decline in private sector output has further exacerbated the situation. This lack of government intervention has led to a hollowing out of construction's structural capacity, contributing to the slowdown in hiring (Source: "Private sector output falls across commercial and residential markets and a lack of counter-cyclical public sector stimulus to offset has led to yet more hollowing out of construction’s structural capacity.").
3. Reduced Investment in Long-Term Employment, Training, and Modernization: Construction employers have been inhibited from investing properly in long-term employment, training, and modernisation, which has led to a decrease in hiring. This situation has been further accelerated by some announcements in the recent Budget (Source: "Construction employers, inhibited at the best of times from investing properly in long-term employment, training and modernisation, have turned the taps off to an even greater degree this year, a situation perhaps further accelerated by some of the announcements in the recent Budget.").
4. Collapse in Apprenticeship Starts and Reductions in Skilled Migrant Workers: The collapse in apprenticeship starts and reductions in skilled migrant workers have contributed to the skills gap in the industry, making it more difficult for employers to fill vacant positions (Source: "In the past two years we have seen a collapse in apprenticeship starts, reductions in skilled migrant workers, retirements gathering pace and the overlaid challenge of business failures across the supply chain driving sector employment down below two million for the first time in over 25 years.").
5. Business Failures Across the Supply Chain: The overlaid challenge of business failures across the supply chain has also contributed to the slowdown in construction hiring, as these failures can lead to a decrease in available jobs and a reduction in the number of employers looking to hire (Source: "In the past two years we have seen a collapse in apprenticeship starts, reductions in skilled migrant workers, retirements gathering pace and the overlaid challenge of business failures across the supply chain driving sector employment down below two million for the first time in over 25 years.").

Impact on the Industry's Ability to Meet Project Demands

The hiring slowdown in the construction industry significantly impacts its ability to meet project demands, as evidenced by several factors:

1. Decline in Apprenticeship Starts and Skilled Migrant Workers: The construction industry has witnessed a collapse in apprenticeship starts and a reduction in skilled migrant workers over the past two years. This decline in new talent entering the industry hampers its capacity to take on and complete new projects efficiently (Source: "2024 has been characterised by the continued fallout from the economic and political turmoil swirling since 2022").
2. Retirements and Business Failures: The industry is also grappling with an aging workforce, with retirements gathering pace. Additionally, business failures across the supply chain have driven sector employment down below two million for the first time in over 25 years. These factors contribute to a shrinking workforce, making it challenging to meet project demands (Source: "2024 has been characterised by the continued fallout from the economic and political turmoil swirling since 2022").
3. Decoupling of Construction Prices and Output: Construction prices are now actively decoupling from construction output fluctuations. Falling workloads are not being matched by the commensurate tender price deflation seen in previous downturns. This means that even as demand for projects decreases, the industry's ability to adjust prices and maintain profitability is limited, further impacting its capacity to meet project demands (Source: "Construction prices now actively decoupling from construction output fluctuations").
4. Hibernation Mode of Large Capitalized Businesses: Large parts of the capital base of the industry, such as housebuilders and brick manufacturers, are effectively in hibernation mode, awaiting better times. This reduced activity further limits the industry's ability to take on and complete new projects (Source: "As we leave 2024, large parts of the capital base of the industry are still effectively in hibernation mode").
5. Thinly Capitalized SMEs: Thinly capitalized SMEs cannot simply wind down operations or hold their workforce in stock, unlike larger businesses. This makes it even more challenging for the industry to maintain its capacity to meet project demands, as these SMEs are crucial for the industry's structural capacity (Source: "Unfortunately, thinly capitalised SMEs cannot just wind down operations in this way").



Strategies to Mitigate the Effects of the Slowdown

To mitigate the effects of the slowdown in the construction industry, companies can employ several strategies. Here are some key approaches, supported by specific examples and data from the provided materials:

1. Diversify business segments: Construction companies can diversify their business segments to spread risk across different market segments. For instance, focusing on nonresidential segments like manufacturing, transportation infrastructure, and clean energy infrastructure, which are expected to see growth due to legislation like the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act. This can help offset the impact of slowdowns in other segments, such as residential construction (Source: [3]).
2. Improve operational efficiency: Companies can focus on improving operational efficiency to manage volatility in costs, demand, and customer priorities. This can be achieved by:
* Implementing digitalization and generative AI to streamline processes, reduce waste, and improve decision-making (Source: [4]).
* Adopting lean construction principles to minimize waste and maximize value (Source: [4]).
* Optimizing supply chain management to reduce material costs and improve delivery times (Source: [4]).
3. Invest in workforce development: To bridge the lingering talent and skills gap, construction companies can invest in workforce development by:
* Providing training and upskilling opportunities for employees to enhance their skills and adapt to new technologies (Source: [4]).
* Encouraging apprenticeships and mentorship programs to attract and retain new talent (Source: [4]).
* Fostering a culture of continuous learning and innovation to stay competitive (Source: [4]).
4. Adopt sustainable and efficient practices: Incorporating sustainability and efficiency into construction practices can help companies reduce long-term life cycle costs and attract environmentally conscious clients. Some strategies include:
* Reducing the embodied carbon of key construction materials (Source: [7]).
* Implementing passive design principles to minimize energy demand (Source: [7]).
* Utilizing energy-efficient equipment and systems (Source: [7]).
* Experimenting with passive design techniques, such as orienting structures, designing green roofs, and incorporating energy-efficient fixtures (Source: [7]).
5. Maintain financial discipline: To navigate the slowdown, construction companies should maintain financial discipline by:
* Managing cash flow effectively to ensure liquidity (Source: [4]).
* Monitoring and controlling costs to maintain profitability (Source: [4]).
* Diversifying funding sources and exploring alternative financing options (Source: [4]).
* Maintaining a strong balance sheet to withstand market fluctuations (Source: [4]).

By implementing these strategies, construction companies can better position themselves to mitigate the effects of the slowdown and capitalize on future growth opportunities.

In conclusion, the construction industry faces significant challenges in 2024, with a slowdown in hiring and several factors impacting its ability to meet project demands. However, by diversifying business segments, improving operational efficiency, investing in workforce development, adopting sustainable and efficient practices, and maintaining financial discipline, construction companies can better navigate the current landscape and prepare for future growth.