Cooling housing market dampens construction growth

Housing Wed, Mar 23, 2016 10:35 AM

A slowdown in the private housing market compounded by continuing public sector weakness has led to a decline in construction activity, according to the latest figures from industry analysts Glenigan.

The Glenigan Index for December, which covers projects starting on site during the three months to November, is 5.5% down on last year – the first decline recorded so far in 2014.

Private housing project starts are 8% lower than a year ago, suffering from a particularly strong performance during the same period in 2013. Property transactions in the wider housing market have cooled in recent months, with Nationwide reporting that house prices fell 0.9% during the three months to November.GleniganIndex_Dec-14

The value of underlying project starts is lower across government-funded sectors. Education and health project starts have dropped back, in contrast to the positive trend seen for much of 2014. The retrenchment in the social housing sector remains ongoing, with starts 13% down on a year ago.

In contrast, rising commercial project starts are helping to offset the recent weakening in other areas. The value of industrial building, offices and hotel and leisure projects over the last three months are up 4%, 11% and 12% respectively on a year ago.

Commenting on this month’s Index figures, Allan Wilén, Economics Director at Glenigan, said: “While the current dip in project starts is disappointing, the industry’s forward pipeline points to sustained output growth in 2015.

“Nevertheless, these latest figures highlight the importance of rising private sector confidence to deliver increased activity levels next year.”

He added: “Private housing and the commercial and industrial sectors are forecast to be the main engines for growth over the next 12 months.

“Mortgage availability and affordability issues have contributed to the current cooling in the housing market. Rising real household incomes and improved consumer confidence will be pre-requisites for delivering next year’s forecast sector growth.”

Only half of the 12 UK regions experienced continued growth in construction starts in the three months to November. The East Midlands saw the fastest growth, with project starts up 23% on a year ago.

Parts of the north of England have seen strong growth over the last year, but there are signs of this easing. In the North West and Yorkshire and the Humber there has been growth of 10% and 15% in the 12 months to November, but in the most recent quarter there are year-on-year falls of 19% and 3% respectively.

Northern Ireland and Wales continue to see strong growth in starts, albeit from previously low bases. Scotland has recorded a recent dip in project starts, but a renewed strengthening in activity is forecast for 2015 as investors press ahead with projects that had been deferred until after the independence referendum.

The monthly Glenigan Index is based on extensive research of every construction project starting in the UK over the previous three-month period, providing an indicator of developing activity and future output in the industry.