Glenigan, one of the construction industry’s leading insight and intelligence experts, has released its UK Construction Industry Forecast 2023-2025 and predicts that the housebuilding industry will return to growth in 2024 following a challenging 2023.
Multiple factors behind short-term decline
The forecast shows that starts on-site will fall by 18% in 2023 overall, with the first four months of the year having seen sharp declines as the fallout from last autumn’s mini-budget and a weak outlook dented investor and consumer confidence.
Ongoing conflict in Eastern Europe, materials shortages and cost inflation, and, more recently, spiking interest rates, are expected to delay work moving to site for the remainder of the year,
However, there’s recovery in the not-so-distant future, with a 12% increase in starts predicted in 2024, and 3% in 2025.
Public sector picks up
The Glenigan forecast suggests that public sector construction is set to be a relative bright spot during 2023, as government departmental capital programmes are boosted by underspend rollover into the current financial year.
However, disruption to project starts is likely in the run-up to the next general election, and post-election, as a new administration looks to review and consolidate public sector investment programmes currently in the works.
Peaks and troughs for private residential construction
Housing market activity fell sharply during the first four months of 2023 and is predicted to slow further throughout the year as housebuilders respond to weakening market conditions and regulatory assimilation, opting to build out schemes rather than opening new sites.
Weak private housing starts are predicted to continue through the rest of the year, with Glenigan forecasting a 33% decline as falling real household incomes and rising mortgage rates cool housing market activity.
However, this slowdown appears temporary, with a renewed project starts recovery anticipated, rising 7% in 2024 and 8% in 2025, as households’ financial positions and UK economic prospects improve.
Commenting on the forecast, Glenigan’s economic director, Allan Wilen, said: “The pattern of UK construction activity is being reshaped by economic slowdown and structural changes, while new regulations are transforming how projects are delivered. We are still in a state of extreme uncertainty, and the industry is set for a challenging period.”
“It’s been a rocky start to the year for the private residential sector, with starts nosediving thanks to a tough economic landscape and rapid rises in mortgage costs. A sustained retrenchment in starts is forecast for 2023 as housebuilders respond to a slowdown in new house sales, focusing instead on works to existing sites. Despite this, brighter economic prospects are expected to support strengthened property transactions and a partial project-starts recovery during 2024 and 2025.”
