Housebuilding fares better in construction slowdown

The pace of increase in workloads in the construction market continued to slow, according to RICS’ latest UK Construction Market Survey, following a trend that goes back to the middle of last year.

This flatter picture is visible across all sectors; 17% more respondents reported a rise in activity over the previous three months compared with 28% in the first quarter, with the most pronounced slowdowns being seen in the private commercial, industrial and housing segments.

However, 27% more contributors still reported a rise in private housing activity – down from 36% in Q1 – while 17% more respondents saw their workloads in the private commercial sector rise rather than fall in Q2.

Meanwhile, in Northern Ireland, strong growth in house-building led to a pick-up in overall construction activity, according to the RICS and Tughans Northern Ireland Construction Market Survey.

A net balance of 56% of surveyors in Northern Ireland reported a rise in private housing building during the past three months, compared to 26% in the previous quarter.

In contrast however, infrastructure workloads fell sharply, with the balance of Northern Ireland surveyors (-16%) pointing to a drop in activity. Northern Ireland was the only region of the UK in which the balance of surveyors reported a decline in infrastructure workloads.

“Overall, the report is pointing to rising construction activity, driven by house building, but we are not seeing evidence of any pick up in infrastructure investment, which is essential to future economic growth,” said RICS Construction Spokesman for Northern Ireland, Jim Sammon. “Surveyors are also expressing concern about the potential impact of Brexit on some investment plans in the construction sector.”

In breaking down the term financial constraints, 36% of respondents reported that a lack of funding was restricting new developments. Meanwhile, planning and regulatory delays also remain a key issue with 60% of respondents citing that these are constraining growth.

Despite the slowdown in activity in Q2, skills shortages remain a problem with 56% of contributors reporting that a lack of appropriately skilled labour was a constraint on growth. Bricklayers and quantity surveyors remain in particularly short supply with 59% and 57% of respondents citing difficulties in these areas.

The more uncertain prospects for the economy have led to a less optimistic outlook for the sector over the year ahead. Although, putting this in perspective, 23% more contributors still expect activity to rise rather than fall over this period.

On average, contributors foresee their workloads increasing by 1% over the coming 12 months, down from the 2.8% growth predicted in Q1. Expectations for employment growth have also moderated significantly with a rise of 0.6% anticipated, down from 2% the previous quarter.

Aside from in Scotland where activity flat lined relative to Q1, respondents in all other parts of the UK continue to report a rise in workloads.

“The Prime Minister and Greg Clark’s decision for a proper and comprehensive industrial strategy has been long awaited. It’s a very welcome signal of intent, ready to intervene and reinforce strategic sectors, like steel,” said Jeremy Blackburn, RICS Head of UK Policy. “Whilst this must include fresh thinking, around innovation and skills, policies announced before the referendum like increasing capital allowances and regional enterprise zones should be maintained.

“Construction and infrastructure need to be at the heart of the future strategy – as a partnership led by Ministers, like the aerospace or automotive sectors. It should look at competition, enterprise, investment, innovation and skills as main drivers. Getting funding and skilled tradespeople will need solving but the long term viability of the sector – rather than boom and bust – is central.

“As Ministers move to lay out a timeline and ambition for negotiating Brexit, construction will need clarity particularly on the nature of our future access to the EU single market for capital, materials and labour.”