UK housebuilding at its weakest since start of pandemic, say surveyors

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Surveyors reported their gloomiest assessment of UK housebuilding since the onset of the pandemic in the three months to September, suggesting that construction output is falling and adding to housing supply shortages.

The Royal Institution of Chartered Surveyors on Thursday said its housebuilding workload activity index, which captures the difference between the percentage of those reporting an expansion in workload and those reporting a contraction, plummeted to minus 26 in the third quarter from minus 12 in the previous three months.

The slowdown in construction activity has been driven by interest rate rises, which have increased the cost of borrowing, hitting builders and dampening demand for housing, according to analysts.

Rics attributed the drop to “the challenges currently being encountered by housebuilders in the face of slower sales and tougher pricing”.

The score was similar to the minus 27 registered at the start of the Covid-19 pandemic in the second quarter of 2020, when the construction sector was largely shut. It was the second lowest reading since the 2009 financial crisis.

Line chart of Net balance between proportion reporting expanding and falling workload showing Surveyors report falling workload in UK housebuilding

Surveyors’ outlook for the year ahead was downbeat. The construction sector, which accounts for about 7 per cent of the economy and employs more than 2mn people, will continue to contract after output fell in July and August, the index suggested.

The fall in housebuilding drove the workload index for the whole construction sector to a net balance of minus 10, its lowest since the early months of Covid-19, when it plunged to minus 36.

However, there were signs that the market was partly supported by growth in infrastructure and construction work commissioned by the public sector.

Two-thirds of surveyors said that financial concerns were limiting their activity as borrowing costs rose. The Bank of England increased interest rates from an all-time record low of 0.1 per cent in November 2021 to the current 5.25 per cent.  

The shortage of housing stock is further stretching the affordability of homes. “The tougher environment around the housing market is now coming through in terms of a slowing in the buildout rate of new developments,” said Rics chief economist Simon Rubinsohn.

“Housing supply is likely to fall at least for the next year compounding the problems already being faced by many of those looking to get a first step on the property ladder or move into the rental market.”

The number of surveyors reporting a loss of demand was at its highest since the final quarter of 2020. This was impacting their business plans as higher mortgages made property harder to afford for many households

About 40 per cent of respondents still reported problems in hiring the likes of bricklayers, carpenters, plumbers and electricians. But as workload falls, the challenges around recruitment in the industry are expected to ease.

Sam Rees, senior public affairs officer at Rics, said the drop in housebuilding highlighted the urgency to launch “a structured, holistic plan for tackling the housing crisis.

“While the government’s recently announced intention to meet its target of one million new homes before the end of this parliament is laudable, detail on how this will be achieved is still missing,” he added.


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