House building sector could be hit by political uncertainty

There could be a fall in house building levels from next year as a consequence of political uncertainty which could cause a lagged effect, according to the Construction Products Association (CPA).

The CPA this week announced that construction output is set to increase by 5.5 per cent this year, but will slow to 4 per cent in 2016 and 3.4 per cent in 2017, due to uncertainty relating to Government policies, such as Help to Buy.

The lag between construction contracts and work on the ground means that construction activity in 2015 probably will not be impacted by the election until next year, since the majority of work for the year has already been planned.

“Construction output is forecast to increase 5.5% in 2015, which is more than double the rate of growth for the UK economy, due to growth in the three key sectors of construction; private housing, commercial and infrastructure,” said Dr Noble Francis, Economics Director. “Over the following two years, however, construction output is forecast to be adversely affected by the UK’s most uncertain election in more than 40 years.”

Although fewer homes are being developed than the country requires annually, private house building growth is forecast to slow to 5 per cent in 2016 and 3 per cent in 2017.

Dr Francis added, “Again, this is primarily due to uncertainty regarding Government policy such as Help to Buy, which has otherwise stimulated house building in the last two years.”

“This means that despite five years of recovery projected to 2017, private house building at that time is still forecast to be 19.2 per cent lower than at the pre-recession 2007 peak.”

The level of construction in the residential property sector slowed by 1.6 per cent in February, while output in the overall construction industry dropped by 0.9 per cent, new Government data showed.

Output in new private housing, which is the amount property building firms charge to customers for the value of work, dropped from £1.738 billion in January to £1.710 billion in February.

The slowdown in private housebuilding for a fifth successive month will do nothing to ease first time buyers’ fears that affordability pressures are here to stay unless politicians take decisive action, according to Andy Frankish (left), New Homes Director at Mortgage Advice Bureau (MAB).

He commented, “Short term schemes to help with deposit savings and mortgage access are all very well, but we also need a long term commitment to new ways of increasing housing stock.

“One of the big difficulties is that the planning system is not being used to its full potential. Many smaller developers simply do not have the time and resources to prosper through the speculative housebuilding model, which – for all the efforts of the bigger firms – is holding back total output.”

Frankish believes that if the Government is serious about hitting house building targets, it cannot expect to rely solely on larger builders spending heavily on land and battling the system to secure planning permission.

He continued, “We need to complement their efforts with new, innovative thinking and by increasing support for options like custom build. This can help smaller developers to contribute more, by giving them better access to finance and cutting out the high marketing costs often associated with new build homes.

“There is no single solution to the housing crisis, but through better use of the planning system, custom build can make a far bigger contribution to new housing stock. The low risk associated with this type of home is very attractive to mortgage lenders. With greater backing and favourable planning consent, custom build can introduce a high number of plots to the market in a short space of time.”