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Making a Decent : living

AGENDA - As the Government's Decent Homes initiative develops into big-money contracts, the repair and maintenance market is losing its Cinderella image.Grant Prior reports

DOING UP Mrs Johnson's old bathroom at number 42 is hardly a priority job for Britain's major contractors. But when that bathroom becomes a whole street-worth of repairs, then a whole estate, or even a whole city, the big construction players get pound signs in their eyes.

Cash has been pouring into social housing since the Government started its Decent Homes campaign in 2000.Now the sector has matured into a twotier market with a premier league of contractors emerging to pick up the plum jobs (see below).

An indication of how seriously the sector is being taken came last week when leading City analyst Dresden Kleinwort Wasserstein produced a new report into the market.When the stock-pickers in the City start recommending buys in a new sector you know that market is on the move.

It is not difficult to see why social housing is shaking off its Cinderella image. A quick glance at the numbers reveals the size of the prize.The Government is committed to bringing all homes up to a decent standard by 2010, guaranteeing work for the next five years.But that target is likely to be missed and work could continue for a long time beyond the Government's optimistic deadline.

Analysts at DKW believe at least 1.1 million homes need to be upgraded.

Government figures show that £18 billion of public and private money has been spent over the past seven years transforming social housing.

The money has been around for a while but the pace of investment is now set to increase.The value of individual contracts is getting bigger as whole cities offer out their repair and maintenance packages in one mega-deal.

One analyst said: 'There are increasing signs now that the larger metropolises are joining the fray, suggesting that the industry's workload will step up another gear in the next two to four years.

'While the level of contracts placed for outsourced refurbishment work has grown, it is also evident that there are a number of companies that are securing the lion's share of the work.There does seem to be a 'premier league' emerging and we expect these to secure the majority of new work to be allocated in the coming years.'

Typical of the deals now attracting the major players was Sheffield's £1 billion contract to upgrade 55,000 homes, which started on site towards the end of last year. Connaught, Keepmoat, Kier, Lovell and Mears each picked up a £200 million slice of the job with guaranteed work for seven years.The deal provides a pointer to the amount of work in the pipeline for firms in the social sector.

The analyst said: 'By 2004 some 1.1 million homes were still considered to be below the Decent Homes standard. If we use the average cost of £18,000 per home from Sheffield's plans that gives a further spend of £19.8 billion through to 2010.'

The analysts believe new firms will find it hard to break into the social housing sector now the incumbent contractors have established a foothold.

One DKW analyst said: 'It would seem difficult for new entrants to make headway via greenfield start-ups.Buying into existing service providers would seem the more logical route.We expect consolidation in this industry in the coming years.'

The City experts also believe the premier league contractors will win an ever-increasing share of work at the expense of council in-house works departments and smaller local companies.

The top 10 companies still have a long way to go because, despite their size, they still only account for less than 20 per cent of the total market.

An analyst said: 'Given the size of the market, the supplier base is still extremely fragmented.The trend we anticipate is for the main service providers to expand at the expense of the smaller firms and in-house suppliers.

'Even if the market peaks later this decade, there seems scope for growth to continue for the likes of Connaught and Mears.We are expecting both to break through the £200 million-level of revenue from this sector in the near future but these levels will still be a small proportion of the likely annual spend.

'Via new contract wins, market share gains, possible further acquisitions and new service offerings, there would seem to be plenty of opportunities to grow these revenue figures during the rest of the decade.'

The key question facing contractors is: how will spending bear up after the anticipated 2010 completion of the Decent Homes initiative? The Government has already admitted that the scheme is behind schedule and Connaught chief executive Mark Tincknell said: 'Decent Homes is way behind at the moment and we would expect it to extend to 2015 at least.

'There are still well over one million homes in the UK below Decent Homes standards and, with the average spend per house of £15,000, these are good times.'

That sentiment is backed up by the analysts, who predict: 'The maintenance-related market is likely to show continued growth through to 200709.We then expect demand levels to plateau until 2010-12.Thereafter we assume there will be a reduction in spend of somewhere between 10-30 per cent.Timing and extent of the decline depends on how much overrun there is from the 2010 Decent Homes timeframe and how much is offset in Scotland and Wales, where timetables lag behind.

'Some of the decline be offset as the larger service providers develop related services and long-term relationships with housing associations.'

The analysts have given both Connaught and Mears positive recommendations. And the attentions of the City show that social housing is now an established and growing market, which is driving along overall construction growth and spending. Perhaps a lot of contractors are now wishing they had paid more attention to the state of Mrs Johnson's bathroom.