The Real Size of Our Industry: The Price is Right

Architecture supports the rest of the economy and determines the nation’s quality of life. I exaggerate slightly to make a point, that the built environment is far more important to the nation than it understands.

Construction, the industry we design for, is valued by the DTI as spending £80 billion or 7% of the GDP, as big as the health service but very fragmented. In fact the trade spend on building work is all that is measured as construction.

To define the whole built environment sector one needs to embrace the consultants who define projects and advise customers, the development sector which provides land, finance and management, ourselves as designers – worth £12.3 billion a year according to the Construction Industry Council – constructors and finally the facility managers who deliver usable space to customers and their customers. This whole value chain is worth around £200 billion or 18% of the GDP. Closely engaged with the built environment are the utilities such as energy, transport, water and waste handling, all told amounting to about a quarter of the economy providing the functionality, service quality and physical context for our national life.

It’s not a passive role. The built environment either facilitates effectiveness or it inhibits it. It can be designed to add value to everything else. So design is a major economic act. It creates value by delivering benefits that exceed cost; that’s the definition of value. We as an industry have allowed ourselves to be pigeonholed as a cost to be minimised, not as the value-adders we surely are if we understand our role. Design levers customer’s advantage by at least 2,500 times the cost of fees, and potentially by ten times that, as the Royal Academy of Engineering showed in 1998 with its formula 1:5:200. This related the capital cost of building to its 20-year operating cost and the generic occupants’ 20-year business costs. Designing to reduce operating cost and increase occupier effectiveness can be cost-justified.

Sceptics of this analysis have pointed to the high cost of finance, often exceeding the initial construction cost, and to the effect of discount rates in reducing the net present value of future costs. In their minds the fixation with minimising first costs remains justified, and with it downward pressure on the cost of the creative process.

A major change is near however. Interest rates are likely to be lower long term, following the decline in inflation and reducing the cost of finance. Official discount rates are set to be moved from 6% to 3.5% for the calculation of net present values. The change will lower first costs and raise whole-life costs in any project feasibility study. Designers will be freshly empowered to invest in features that reduce future costs and increase occupier performance. We will, more than ever, need to know how buildings perform for their occupiers and as pieces of equipment. The work of Building Performance Group, a firm that grew out of the old National Building Agency, will be a significant resource to build on.

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