Private housing to lead construction growth in 2018

October 16, 2017 / Isla MacFarlane
Private housing to lead construction growth in 2018

Private housebuilding will shoulder the growth of the construction industry in 2018, according to the latest forecast from the Construction Products Association (CPA).

The CPA predicts that housebuilding will continue to be a primary driver of growth, with private housing starts rising by 5.0% in 2017 and 2.0% in 2018.

In 2017 Q2 the government’s Help to Buy equity loan accounted for 40% of new homes. The CPA believes that the additional £10 billion announced for the scheme in October will continue to sustain housebuilding despite the slowdown in the general housing market.

For most construction firms it will be difficult to escape the impact subdued economic growth, rising inflation and falling real wages will have on the industry over the next two years. In the construction sector, commercial building is expected to bear the brunt of this.

“The falls in commercial construction may be offset by growth in housebuilding and infrastructure,” said Noble Francis, Economics Director at the Construction Products Association. “However, due to the slowdown in the general housing market, particularly in London, housebuilding is only expected to grow by 2.2% in both 2018 and 2019.”

The latest forecasts from the Construction Products Association come at a time where any growth at all will be reliant on government’s delivery of infrastructure projects. This is likely to have a profound effect on construction output, which if not realised would lead to an industry-wide decline of over 1.0% in 2018.

“Construction activity is currently high, particularly in cities outside the capital such as Birmingham and Manchester,” said Francis. “However, the forecasts highlight that the fall in construction new orders since the second half of 2016 is now starting to feed through to activity on the ground as projects signed up to pre-referendum end and are not being replaced. This is especially the case in key areas such as the construction of new commercial offices in London, where demand for new high profile office space from the financial sector has slowed considerably.

“Infrastructure is expected to be major driver of construction activity in the next few years with work on major projects but the sector has been dogged by constant cost overruns and delays. Given that construction activity is forecast to be flat in 2018, if government cannot improve delivery of its infrastructure plans, construction output is likely to decline next year.”

The forecast comes amid rumours that Theresa May has called Britain’s largest housebuilders to an emergency summit this week. According to government sources quoted by the Telegraph, the Prime Minister will “lay down a challenge” to the industry to construct more homes, in a “significant intervention”.

Meanwhile, pressure is mounting on Chancellor Phillip Hammond to drop the ‘safety first’ approach in this year’s Budget on 22 November. It is widely expected that the Chancellor will make big promises on housing in a bid to win young voters.

New measures could include allowing local councils to borrow more to build new homes, pumping more money into the Help to Buy scheme and releasing land from the Green Belt.

“Even Theresa May admits seven years of Conservative failure on housing was a big part of why her Party did so badly in the Election, yet she has no plan to fix the housing crisis,” said John Healey MP, Labour’s Shadow Secretary of State for Housing.

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