The State of the Construction Industry – Heading for a Perfect Storm

A report by Designing Buildings Wiki shows that the total construction industry output is still 9% down on what it was 10 years ago.

Public sector output has increased by 12% in the last 10 years, whilst private sector output has shrunk by 15%.

This increase in public sector spending, in combination with the beginnings of a recovery in the private sector during 2010 / 2011, meant that by the second half of 2011, total output for UK construction peaked at nearly 5% higher than it had been in 2002.

However, in the first half of 2012, both public and private sector output fell, resulting in total output dropping to a level 9% lower than it was in 2002.

If the public sector continues to shrink at this rate, the private sector will have to grow by more than a third of a billion pounds a quarter just to keep total output at its current level.

If the public sector continues to shrink, and the private sector does not grow to fill the void, the industry will enter a double dip recession.Aus

David Trench CBE, Chairman of Designing Buildings Wiki comments: “Until the beginning of this year, the construction industry had held up pretty well, supported by increases in public spending. But in the last three quarters, public spending has dropped, and if the current trend continues we are headed for a perfect storm.

“Our analysis shows that to make up for public sector cuts, the private sector will have to increase output by more than a third of a billion every quarter just to maintain the current level of total output. The phenomenal level of private sector growth required to actually bring about a recovery could only be achieved through a clear, combined Government/industry investment policy, and it needs to happen now.”12


Wriglesworth Vlog: Paper Summary for 28th August 2012

The key macro-economic, personal finance and property stories from today’s papers, read by Wriglesworth Chairman John Wriglesworth.

Weak sterling bolsters capital’s property price growth says Cluttons

  • Annual price growth in prime Central London forecast at 3.2 per cent for 2012
  • Rise in first time buyers purchasing with mortgages
  • Rental prices to continue on positive path after 2012 rental readjustment
  • Cash buyers continue to dominate higher end of the market

International cash buyers benefitting from the weak sterling advantage are contributing to demand for homes in prime Central London, reports Cluttons in its Residential Property Forecasts: Q3 2012, released today. Compared to the price peak in Q3 2007 buyers from the Far East are now benefitting from price discounts of as much as 60 per cent and buyers from the Middle East as much as 30 per cent, as a result of the weakened sterling currency.  With no immediate appreciation in the value of sterling predicted, this advantage looks set to continue.

Cash buyers, both domestic and foreign, are still very much in evidence in the prime Central London market, which continues to be perceived internationally as a safe haven for cash. At the lower end of the market, demand is also being sustained by the greater availability of mortgage finance for first time buyers, particularly in the higher loan to value ratio brackets. In the first seven months of the year, the number of first time buyers purchasing with a mortgage has more than doubled on the same period in 2011.

These factors combined will maintain demand in the prime Central London market and supersede the 0.5 per cent contraction in GDP expected this year. For this reason, Cluttons predicts annual growth of 3.2 per cent, despite the impact of the Olympics, which saw buyers and sellers delay moving plans, dampening the pace of growth.


The expectation of weak global economic conditions, however, will suppress the rate of growth next year, with prices rising 2.5 per cent. Growth of 4 per cent is expected to follow in 2014 and 2015 as domestic conditions improve, lifting the performance of the capital’s housing market. Meanwhile, the wider UK market will see price falls of 1 per cent this year with marginal falls again in 2013 and growth of 1 per cent in 2014.


Sue Foxley, head of research at Cluttons, said:


“The prime Central London property market continues to buck the national trend, putting in a slightly stronger performance than we had previously anticipated. Strong annual growth of 3.2 per cent is forecast in spite of significant downward pressure on prices as the economy continues to muddle through.


“International buyers have long bolstered demand for property in the capital, pushing up prices as the supply shortage continues. However, a growing mortgaged first time buyer market means that we are likely to see increased competition for properties at the lower end, which will have a far reaching effect on the whole of the supply chain. The Bank of England’s Funding-for-Lending scheme also appears to be re-energising the debt financing market, which is very positive news,”


The Central London rental market did not experience the much anticipated Olympic boost from tenants and a moratorium on corporate moves during the games compounded this. However, evidence of a rise in recruitment in June and July suggests a flurry of activity in the autumn. Despite this, a rental growth readjustment is still underway, with a 1 per cent contraction forecast this year. This is largely in response to the unsustainable rental growth seen in 2011. Cluttons expects positive growth of 2 per cent to follow in 2014 and annual rises of 3.5 per cent to 4 per cent in 2014 and 2015.