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Struggling Housing Starts Outweigh Growing Demand

July 20, 2018

Despite the growing demand for single-family housing, the U.S. construction industry is finding it difficult to keep up due to the continuously increasing material costs. According to the National Association of Home Builders (NAHB) and the latest data from HUD and the Commerce Department, these struggles were reflected in the total housing starts for June when overall home construction plummeted to a nine-month low.

On July 18, NAHB reported a 12.3% drop in total housing starts last month—single-family and multifamily starts fell 9.1% and 19.8%, respectively. While overall construction permits decreased 2.2%, single-family permits had a slight gain of 0.8% compared to the 7.6% decline in multifamily permits. Experts noted that permit readings help determine the likelihood of future housing production, which is nearly 8% higher than this time last year but expected to dwindle in coming months.

“The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market,” NAHB Senior Economist Michael Neal said in the report. “Moreover, the soft permit report does not suggest a significant increase in housing production in the near term.”

Wells Fargo’s housing construction analysis cited tariffs as the culprit behind rising material costs and “a key challenge in meeting rising demand.” The Producer Price Index for construction materials and components reached its second-fastest pace in nearly a decade at a three-month annualized rate of 10.4%.

The Northeast region saw the worst decline in combined housing starts with a 40% drop, NAHB reported, followed by a staggering 35.8% in the Midwest.

-Andrew Michaels, editorial associate

UK Councils Not Following 30-Day Payment Rule

July 18, 2018

Local authorities in the United Kingdom, known as councils, are facing backlash from construction associations after freedom of information (FOI) requests revealed about 90% of councils were not enforcing construction firms to pay supply chains within 30 days as required by legislation.

Under “Miscellaneous Provisions” in Chapter Nine of the Public Contracts Regulations 2015 (PCR2015), payment from “the contracting authority to the contractor under the contract is to be made no later than the end of a period of 30 days from the date on which the relevant invoice is regarded as valid and undisputed.” According to news website The Construction Index, the Electrical Contractors Association (ECA) and the Building Engineering Services Association (BESA) submitted FOIs, which found almost nine in 10 councils were not in compliance. PCR2015 requires public bodies to enforce the 30-day payment rule.

“Noncompliance by the public sector with the [PCR2015] is unacceptable,” ECA Deputy Director of Business and Policy Rob Driscoll said in the article. “This is especially significant given the cautionary tale of the collapse of Carillion—one of the key strategic suppliers to government—which ultimately had a wider impact on [small- and medium-sized enterprises].”

The trade groups are now calling for the government and construction industry to collaborate on developing a “fairer payments system.” Fairer practices will not only correct enforcement, but also redirect the 49% of councils that said they do not have, or do not know whether they have, the 30-day payment rule in the contracts. The FOI also noted that 18% of councils do not plan on implementing this requirement into contracts.

-Andrew Michaels, editorial associate

Australian Government Going After Late Payers

July 17, 2018

The Australian government is looking to combat late payments in the construction industry. The Australian Building and Construction Commission (ABCC) launched a campaign July 17 to help subcontractors secure payment.

According to a 2017 survey, 72% of Australian subcontractors surveyed reported at least 40% of their invoices were paid late, while another third of respondents said 60% of their invoices were not paid on time.

ABCC Commissioner Stephen McBurney is expected to write to contractors and subcontractors who “have tendered for Commonwealth-funded building work.” ABCC also announced that the campaign will educate subcontractors about their rights to prompt payment and how to report disputes and delays in payments.

According to the latest FCIB International Credit & Collections Survey for Australia (June 2018), billing disputes are the No. 1 reason for payment delays with nearly a third of respondents reporting the issue. However, there was no report of increasing payment delays, and a third of those surveyed said they had no payment delays at all.

“In short, we ask contractors to pay their subcontractors on time and, if there are payment delays or disputes, to sort these out quickly and reasonably,” McBurney concluded.

-Michael Miller, managing editor

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