Construction workloads in the UK have turned negative in Q3 driven by a drop in housebuilding, and current financial challenges, according to the latest Royal Institution of Chartered Surveyors (RICS) UK Construction Monitor.
The headline reading, which captures workload activity for the whole of the construction industry, saw a net balance of -10% of respondents reporting a decrease in activity this quarter, which is the most downbeat result since the early months of the pandemic.
Looking at individual sectors. infrastructure is still growing although is now showing a slowdown (+10% vs +17% in Q2) as are public works (net balance of +8% vs +14% Q2). All other segments are now seeing a fall. The largest fall is in private housebuilding where the net balance has dropped from -12% to -26%. This reflects the challenges housebuilders are facing with slower sales and tougher prices. Public housing, private industrial and private commercial workloads are also declining. It is also noteworthy that new business enquiries when taken across the sector are now also negative with a reading of +6% in Q2 to -2% in Q3.
Predictably given the further tightening in monetary policy over the summer, a net balance of +38% of respondents report that the credit environment is becoming more restrictive, and two thirds of contributors view finance as limiting current activity. A higher number of respondents are also now saying that inadequate demand is impacting business plans, this measure has been steadily climbing and is now at its highest level since the final three months of 2020.
As workload drops, the challenges around recruitment in the industry continue to ease although they still remain significant. Just over half of the contributors to the survey cite labour supply as an issue. Roughly 40% of respondents are still drawing attention to problems in hiring the likes of bricklayers, carpenters, plumbers and electricians and the issue around quantity surveyors appears more problematic, with still around half of the feedback received to this question highlighting a shortage of qualified professionals to take up roles.
Looking ahead, only around one-third of respondents anticipate an increase in productivity over the course of the next year.
Sam Rees, Senior Public Affairs Officer at RICS, said, “The latest reported drop in housebuilding highlights the urgency to launch a structured, holistic plan for tackling the housing crisis. While the government’s recently announced intention to meet its target of one million new homes before the end of this parliament is laudable, detail on how this will be achieved is still missing.
“The RICS Manifesto for the Built Environment sets out a comprehensive and ambitious housing delivery strategy that focuses on local needs, skills investment and the creation of new homes through building and conversions, incorporating crucial planning reforms and innovations.”
RICS Chief Economist, Simon Rubinsohn, said, “The tougher environment around the housing market is now coming through in terms of a slowing in the build out rate of new developments according to feedback from RICS members. This suggests that housing supply is likely to fall at least for the next year compounding the problems already being faced by many of those looking to get a first step on the property ladder or move into the rental market. In contrast, the trend in infrastructure work is still positive albeit less so than previously.
“Chiming with growing concerns about the rising level of insolvencies in the sector, the survey also highlights the tougher credit environment being faced by many developers. Significantly, financial constraints are now viewed as the major challenge by the industry.”
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