Housing challenges weigh on construction output

Construction output is forecast to fall by 2.1% this year due to falls in private housing new build and repair, maintenance and improvement (RM&I), according to the Construction Products Association’s (CPA) latest forecast.

Private housing (the largest construction sector) suffered a double-digit fall last year after a spike in mortgage rates hit demand.

The CPA said many housebuilders have reported a fall of 25-35% in demand, in addition to the regulatory issues that smaller housebuilders continue to face, in particular around planning, as well as water and nutrient neutrality.

In addition, private housing RM&I (the second-largest construction sector) and activity continues to be on a general downward trend.

The rising cost of living has hit discretionary spending on household improvements. Overall, private housing RM&I output is expected to fall by 4% in 2024 before growth of 3% in 2025.

Lack of housebuilding support ‘disappointing’

In infrastructure, the third-largest construction sector, the CPA said that activity remains strong on the ground.

Work continues apace on HS2 Phase One despite the most recent cost increases, as well as on Hinkley Point C and the Thames Tideway Tunnel.

Still, concerns remain over pauses and delays to National Highways projects, as well as increasing uncertainty on the deliverability of plans in the water sector to deal with water quality issues through increased capital expenditure.

Other issues, such as local councils’ ongoing financial challenges, suggest that any uplift over the forecast period is unlikely. As a result, overall, infrastructure output is expected to fall by 0.5% in 2024, a third successive marginal fall in output, before rising by 1.2% in 2025.

CPA economics director, Noble Francis said: “The bigger problems for the industry are the hits to activity last year in its two largest sectors – private housing and private housing RM&I. These are likely to continue into 2024.

“Even with expected falls in interest and mortgage rates in the second half of this year, rates are likely to remain relatively high and so demand in the housing market, house building sector and RM&I sector is likely to remain subdued overall.

“Given the importance of housing to the UK economy, it was disappointing that the chancellor’s Autumn Statement last year had little to help the beleaguered sector. It is critical that we see measures to help boost house building and homeownership from government in the upcoming Spring Budget.”

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