Investment Column: Skill shortages threaten builders

Soaring land prices, rising interest rates - there's plenty of reasons to think the housing boom won't last. Now you can add skills shortages to that list of worries. The lack of skilled brickies was flagged yesterday by Tony Pidgley, chief executive of Berkeley Group, as the main threat to the housebuilder's continuing success. When the industry leader voices these concerns, investors should sit up and take notice.

Stories of bricklayers earning as much as pounds 1,000 a week have been doing the rounds for a while. But the evidence is more than anecdotal. A recent survey by the Construction Confederation showed that 78 per cent of its members were having trouble recruiting bricklayers.

The shortages are worst in the South-east. With work on the Millennium dome and a host of other projects about to start, the crisis is likely to deepen.

It's not hard to see the threat to margins. Industry experts reckon labour accounts for about a quarter of the cost of a new house. So if wages rise by, say, 10 per cent, house prices would have to rise by 2.5 per cent just to cover the increase in costs.

Add in higher land prices and it begins to look as if housebuilders will need substantial house price inflation to maintain their margins. They may not get it.

Does this mean it's time to sell the housebuilders? Not necessarily. Investors are already deeply suspicious of the entire industry.

On the stockbroker BZW's profit forecasts, the sector is trading at a 33 per cent discount to the rest of the market, suggesting much of the gloom is already in the price. But skills shortages are another reminder that the housing boom won't last. It may not be time to sell, but it's certainly not time to buy.