Construction Struggles Due to Continued Housing Downturn
CONSTRUCTION STRUGGLES and there’s a slight downgrade in the construction sector’s near-term growth prospects, according to the Construction Products Association’s Summer forecasts, published today.
Output is forecast to fall by 2.9% this year, steeper than the 2.2% contraction forecast three months ago. This is primarily due to recovery being pushed back in the two largest construction sectors, private housing new build and repair, maintenance and improvement (rm&i). This is forecast to remain the case until the Bank of England begins cutting interest rate cuts and consumer confidence strengthens.
In addition, increasing concerns about the potential impact of uncertainty around responsibilities throughout the whole construction supply chain from the Building Safety Act may also delay the delivery of some larger, high-rise projects.
Construction Struggles
The sector’s recovery is now forecast to be in 2025, with growth of 2.0% and a further rise of 3.6% in 2026. It is expected that the lagged impacts of lower interest rates combined with sustained real wage growth will improve consumer and business confidence. This is in addition to greater economic and political certainty as the new government develops its spending plans.
Private Housing
In private housing – the largest construction sector – optimism early in the year faded after Easter. Mortgage rates ticked higher in response to revised expectations that the Bank of England would start cutting interest rates later than previously anticipated. As a result, recovery for the broader housing market and private house building sector has been pushed back.
This year will remain challenging for house builders given both the demand side weakness and supply side constraints such as planning for nutrient and water neutrality, Biodiversity Net Gain. There is also some supply chain uncertainty regarding responsibility and liability under the Building Safety Act and hold-ups at the pre-construction Gateways, which is also likely to be an issue in high-rise public housing and commercial. After last year’s double-digit fall, private housing output is forecast to fall by a further 7.0% in 2024, followed by a rise of 6.0% in 2025.
Repair, Maintenance and Improvement
Private housing rm&i, the second-largest construction sector, is equally as dependent on a fall in interest rates to stimulate the housing market and, particularly, home moves that drive an increase in home improvements. With this now occurring later, in addition to a sharp fall in planning applications for larger-scale improvements, output is now forecast to fall by 6.0% this year. Growth of 2.0% in 2025 signals the start of the sector’s recovery. Nevertheless, energy-efficiency retrofit and solar photovoltaic work has continued to remain strong. Moreover, building safety activity continues to provide a steady pipeline of activity.
Despite the overall construction decline forecast for 2024, the outlook for construction sectors outside of housing remains similar to three months ago. Many firms operating in commercial refurbishment and fit-out or working on major infrastructure projects continuing to experience robust activity.
Rebecca Larkin, Senior Economist at the CPA
CPA Head of Construction Research, Rebecca Larkin, said: “As the two largest sectors of construction account for over one-third of total output, the fortunes of private housing new build and repair, maintenance and improvement heavily influence overall construction performance.
“Activity in both has been held back by interest rates remaining at peak for longer than previously expected. This is delaying the recovery in housing market demand, new build sales and improvements spending that typically occurs after a house purchase. Interest rate cuts and a pickup in sentiment are expected to start in the second half of this year but, realistically, it will take until 2025 for the recovery to be felt more strongly.
“Off the back of the election there have been clear signs of intent from the new government, particularly around potential changes to planning policy to improve housing and infrastructure delivery. However, with little detail at this stage, it is difficult to see any near-term uplift, whilst long-running concerns over skills shortages and the loss of construction workers, which has worsened dramatically in recent years, present the biggest risk to longer-term growth.”
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