New Build & Home Improvement About To Take A Tumble

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Construction output growth is forecast in the latest CPA construction forecasts – but it comes from warehouses and infrastructure, while there will be a slowdown in private housing and a fall in private housing repair, maintenance and improvement from historic high levels.

The CPA (Construction Products Association) says online retailing will push all those warehouses and believes the government still intends to spend on infrastructure (which could be poor call).

The CPA remains cautiously optimistic about house building as annual house price growth continues at double-digit rates and major house builders continue to stress the strength of the market.

However, with the UK economy expected to contract in 2022 Q4, there remains uncertainty regarding how long housing can remain buoyant.

Near-term concerns for major house builders focus on mortgage availability after the end of Help to Buy in March 2023. Other key issues for houses include planning and rising costs of materials, labour and meeting the new Building Regulations. Private housing output is forecast to rise by 1.0% in 2022 and remain flat in 2023.

Losing the race for space

Private housing RM&I (repair, maintenance and improvement) - the third largest construction sector - has been a key driver of activity over the last two years due to the ‘race for space.’

Output is currently 20% higher than pre-pandemic but firms report that smaller, discretionary spending on improvements activity is already falling away, albeit, from a historically high level.

The sector is most exposed to changes in consumer confidence and real incomes. It is also the sector that is most exposed to materials and products cost inflation, as small contractors are less able to plan and purchase in advance for projects.

The harder they fall

Overall, output is expected to fall by 3.0% this year and a further 4.0% next year. However, given that activity in the sector reached historic highs in early 2022, the sector has the potential for falling even harder than forecast. This is dependent on the extent to which falling consumer confidence translates into households’ reduced investment in their homes.

 “Construction activity currently on site is robust, higher than pre-pandemic. It is likely to remain strong near-term due to projects already signed up to. However, construction is not immune to the effects of the wider economy. Over the next 12 months, the rapidly rising cost of living, the  slowdown in economic growth and falls in consumer confidence and spending will undoubtedly impact on private construction investment.”

– Noble Francis 

Economics director, Construction Products Association

Frozen budgets

“In addition, rising labour and materials prices are likely to mean that the industry sees the value of output previously expected but not the volume. This is particularly the case for public sector construction in the longer-term, in which government departments and local authorities are likely to find themselves hamstrung by frozen budgets and rising construction costs.”

Picture: The latest Construction Products Association construction forecasts are out.

Article written by Cathryn Ellis
26th July 2022

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