Alarm as data shows housebuilding ‘close to stagnation’

Key industry figures have sounded the alarm after research showed residential construction growth slowed to its weakest pace since the first COVID-19 lockdown.

The closely-watched housebuilding index produced by the Chartered Institute of Procurement & Supply (CIPS) registered a reading of 50.7 in May, its lowest level since May 2020.

Although residential construction activity has risen steadily over the last 24 months, the latest reading shows it has almost levelled off, despite the government’s ‘Build Back Better’ rhetoric.

Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey for CIPS, said: “Residential construction activity was close to stagnation in May, which represented its worst performance for two years amid signs of softer demand and a headwind from low consumer confidence.”

Brian Smith, head of cost management at infrastructure consultancy Aecom, described the housing slowdown as “concerning”.

“Should this sector begin to misfire as a contributor to aggregate construction sector workload, the effects of this will be felt across the industry because of its size and demand for resources,” he warned.

Gareth Belsham, director of surveyors Naismiths, said residential output levels were “alarmingly close to stagnation”.

He added: “Housebuilders are more directly exposed to consumer confidence than any other construction sector, and on this evidence some residential developers are taking their foot off the gas in response to the slowing economy and rising cost of mortgages.

“These concerns have combined to make builders more downbeat about the future than they have been at any time since the lockdown-afflicted summer of 2020.”

Non-residential building growth remained strong last month, with an index reading of 59.8 in May, while civil engineering activity increased for the fifth month running, this time with a score of 55.5.

The index indicates the proportion of purchasing managers seeing an increase in work, with a score of 50 representing no overall change from the prior month.

The CIPS’s overall construction purchasing managers’ index registered a score of 56.4, its slowest rate of growth since January.

Mark Robinson, group chief executive at framework provider Scape, said the slowdown in growth painted “a concerning picture”.

“Construction has long been a bellwether for the wider UK economy, so its performance should concern everyone,” he added.

“The ongoing conflict in Ukraine continues to place pressure on material prices across the supply chain and labour shortages remain problematic. Looking ahead, further interest rate rises could start to curb the appetite for private developers in some sectors like residential.”

The CIPS poll revealed rising demand for construction products and materials, with “a steep and accelerated rise in total purchasing volumes”. Firms were looking to build up their stocks ahead of anticipated price rises, according to the report.

Three in four purchasing managers saw a rise in prices in May as inflation remained rampant.

However, delays in receiving materials were at their least widespread since February 2020. Some firms noted an improvement in the availability of construction items, despite ongoing challenges, including logistics bottlenecks, Brexit trade frictions and supplier staff shortages.

Almost half of those polled predicted an increase in business activity over the year ahead, with just one in five expecting a decline.

Brendan Sharkey, head of construction at accountancy MHA, took a positive view of the data.

“The UK construction sector, particularly the residential housing market, is coping relatively well, despite the ongoing cost-of-living crisis,” he said. “Momentum may have slowed, but, given the circumstances, the sector is holding up well.

“The economy may be tough for many, but the pandemic was actually good for household savings, allowing people on relatively modest incomes to build up a war chest, which they can now put towards a deposit.

“In addition, supply-chain issues are no longer causing acute problems. Contractors and developers are usually able to get their hands on construction materials.”

Manufacturing experts warned last month that disruptive events over the last couple of years had seen the “just in time” delivery model traditionally used by the industry replaced by a new “just in case” management style, as companies look to protect themselves against disruption.

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