Monthly construction output grew 2.0% in volume terms in December 2021 compared with November 2021. This is the second consecutive month of growth and the largest single-month growth since March 2021 (3.9%), according to ONS stats.
Anecdotal evidence from both returns received for the Monthly Business Survey for Construction and Allied Trades and the Business Insights and Conditions Survey (BICS) suggested some of the issues in sourcing construction products in the second half of 2021 had continued to ease.
Infrastructure new work and private new housing were the largest contributors to the monthly increases growing 8.5% (£212 million) and 3.1% (£95 million) respectively. Notable increases were also seen in the smaller sectors of private industrial and public new housing, which grew by 9.1% (£41 million) and 7.4% (£30 million) respectively.
Stuart Law, CEO of the Assetz group, said: “While today’s figures show huge potential in the housing market, given complex structural issues including rising costs, shortages of raw materials and labour, and other pandemic related delays to imports, we’re likely to see monthly construction figures bounce around for some time yet, rather than a consistent period of growth.
“While the pandemic has dramatically slowed the global supply chain, we can’t shy away from the fact that we are still feeling the substantial impacts of Brexit and we haven’t yet made enough meaningful progress in establishing trade rules favourable to growth. The impacts on the housebuilding sector we’re seeing – rising costs, extra paperwork, and border delay on both goods and labour – were all highlighted by the Public Accounts Committee this week, as ‘the only detectable impact’ of Brexit. That’s obviously not a good place to be in two years on from our withdrawal from the EU. With the Government now talking about ending all Covid restrictions, we need to turn our attention to pulling all available policy levers to improve our ability to trade internationally to maximise growth opportunities as the world opens back up.”
Anecdotal evidence suggests that the increase in private new housing is because of businesses pushing more work through than a usual December as a result of it being their year end. The easing of sourcing certain construction products in December 2021 compared with previous months is also likely to have helped housebuilders’ output.
Anecdotal evidence also suggests the increase in December 2021 in private industrial came from a rise in warehouses and distribution centres. This is further illustrated in the new orders data with warehouses in private industrial seeing annual growth of 144.6% in 2021, likely to be linked to a change in consumers’ shopping habits during the coronavirus (COVID-19) pandemic.
Construction output increased 1.0% (£421 million) in Quarter 4 (Oct to Dec) 2021 reversing the 1.4% fall in Quarter 3 (Sept to July) 2021. Both new work 1.1% (£287 million) and repair and maintenance 0.8% (£133 million) saw increases in Quarter 4 2021.
Eight of the nine sectors saw an increase in Quarter 4 2021. The largest contributors were public other, private industrial and private commercial new work, which increased 8.7% (£110 million), 4.9% (£112million) and 2.1% (£108million) respectively.
Total construction output increased 12.7% in 2021 compared with 2020. This is the largest increase since annual records began in 1997 surpassing the previous record of 9.9% in 2014. It follows a record fall of 14.9% in 2020, largely because of the coronavirus pandemic.
The annual increase in 2021 was because of rises in both new work, and repair and maintenance, which rose 11.2% and 15.5% respectively.
At a sector level, eight of the nine sectors saw an increase in annual growth in 2021. Record annual growth increases were seen in infrastructure (30.4%), private housing repair and maintenance (20.2%) and non-housing repair and maintenance (14.1%).
Anecdotal evidence suggests the large increase seen in infrastructure new work in 2021, is from projects such as High Speed 2, motorway improvements and green energy developments.
Private commercial was the only type of work to see an annual decline in 2021 (6.8%). This fall is on the back of a record decline in 2020 (22.2%) and is the fourth successive decline in annual growth for private commercial new work. Anecdotal evidence from some businesses suggests that they have put investment decisions on hold over the last few years because of economic uncertainty.
Total construction new orders increased by 9.2% (£1,121 million) in Quarter 4 (Oct to Dec) 2021 compared with Quarter 3 (July to Sept) 2021.
New orders are now higher than before the coronavirus (COVID-19) pandemic. Compared with Quarter 4 2019, which was the last full quarter not affected by the pandemic, and not seeing a noticeable short-term spike (as was the case in Quarter 1 2020), total construction new orders are now 16.6% (£1,894 million) higher, with all six sectors having recovered to above their pre-pandemic level in Quarter 4 2021.
Prices in the construction industry, as estimated by the Construction Output Price Index (OPI), increased to 6.2% in the 12 months to December 2021. This was the strongest annual rate of construction output price growth since records began in 2014.
This supports the anecdotal evidence received from survey returns to the Monthly Business Survey for Construction and Allied Trades. The evidence continues to suggest that the rising prices of raw materials such as steel, concrete, timber and glass have contributed to the overall rise in the cost of materials throughout Quarter 4 (Oct to Dec) 2021, however prices began to stabilse in the latter part of the quarter.
The monthly rate of prices for all construction is 0.3% in December 2021, but this has slowed slightly from 0.4% in November 2021 and substantially from the record monthly rise of 1.2% in October 2021.
Law said: “We anticipate demand for housing will lead to continued house price growth of around 8-10% this year, supported by cautious interest rate rises which maintain a market driven by low-cost borrowing. This will, to some degree, allow housebuilders to offset high build costs. But, this dynamic is not sustainable long-term. As house prices rise and living costs spiral, more and more aspiring buyers will find they are priced out of the market and at some point, that will hit demand which could create a perfect storm if we haven’t solved the structural issues with our housing market.
“The Public Accounts Committee report this week will rightly focus minds on cross-border trade issues, but we also can’t forget the serious challenges housebuilders face at home – rising land prices, inflation and an archaic planning system. As well as supporting competition and diversity in the housing market by better funding SMEs, we need to supplement the support outlined in the Levelling Up whitepaper with radical planning reform to have real impact. We also need to make sure we have as many funding lines available to housebuilders as possible to allow them to finance projects in the face of current market challenges.
“This means government funding, but also leveraging the expertise of specialist lenders that are already bringing billions of pounds into the market from institutional and retail investors. Ultimately though, lowering build costs so we can build more houses is the only structurally-sound way to balance supply and demand, keep house price growth sustainable and ensure we don’t create a market facing dramatic cycles of boom and bust.”
