The Economics Of The Brick Cycle and Its Effects on Firm and Industry Structure
THE DEMAND FOR BRICKS
2.1 Mr. Morris Whitehouse, retiring Chairman of Redland Brick and a member of one of the United Kingdom’s most successful brickmaking families, said in 1971 that the Victorian brickmakers were firm believers in the brick cycle and recalled that the seven fat and seven lean years were thought as certain as night and day, and preparations were make accordingly. 1
Indeed, it can be seen from graph 1 that the cyclical nature of brick demand has been the main feature of the brick market since the war. It can also be seen from the graph that the cycle has been volatile, not only in terms of how deep and how high the alternate troughs and peaks go, but also in terms of the length of time between the troughs and peaks. For example, the two demand peaks of 1964 and 1967 occurred within three years of one another whilst the next peak demand year did not occur until five years later in 1972. The average length of each cycle, peak to peak, was found to be 4½ years.
If the exceptional figures after 1979 are ignored, it can be seen that the range between lowest and highest demand in individual years was previously between some 4750 millions and 8100 millions brick deliveries per year. The percentage variations between successive individual years 1950 to 1982 were calculated, and the following figures were obtained: In 15 individual years, demand changed by less than 5% on the previous years’ level, in 9 years by between 5% and 10%, in 6 years by between 10% and 15% and in two years (1980 and 1974), by 17.5% and 28% respectively. 2. Such variations were particularly severe during the periods 1965 to 1974 and 1977 to 1981.
The brick delivery figures shown on graph 1 are useful in illustrating how demand can fluctuate in the medium-term. However, they do not show just how much and how quickly demand can change in a short period of time. Brick delivery figures are not available on a month by month basis. However, some indication as to monthly sales can be found in house-building statistics which are published monthly.
These are of direct importance to the brick industry because over 70% of bricks produced are used in house construction. (3).
Of all the statistics published on the house building industry (4) it is house-start statistics (as opposed to house-completions) which are the most direct reflections of brick-delivery levels, because bricks are used almost entirely during the early stages of a building project. In building a house, bricks are required almost immediately for foundations and slightly later for inner and outer walls. Very few bricks are used in the completing the house; building the roof, fitting the windows, doors and floorboards and finally in plastering and decorating. For this reason, bricks are used in the first three or four months of projects which may take up to 18 months to complete. (4)
Graph 2 represents both house start statistics and the less relevant house-completion statistics for the years 1978 to 1984. It can be seen from the graph that house-starts are extremely volatile, even between successive months. The time period between peaks and troughs in activity levels is revealed to be sometimes very short. For example, during one of the most widely fluctuating periods of activity which occurred between 1979 and 1980, housing starts increased by 50% between December 1978 and December 1979 and then decreased by 60% in the following 12 months to December 1980.
Although these figures show house-starts to be extremely volatile, the fact that just under 30% of brick output is used elsewhere in the construction industry does tend to suggest that monthly brick delivery figures themselves would be smoother than the graph implies. However, the house-start figures have serious implications for certain individual firms within the industry which sell bricks almost entirely for house building. Indeed over 90% of LBC’s output is used for this purpose, whilst other non-specialist brick producers, representing 90% of the total market, sell on average almost 80% of their output to house builders. (5)
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