Sectors - Business

Construction Output Falls in July

Construction output fell for a fourth consecutive month in July 2021. It fell by 1.6% in volume terms, meaning the level of output is now lower than the pre-COVID pandemic February 2020 level.

New work, and repair and maintenance were both contributors to the monthly decline in July, with anecdotal evidence from businesses suggesting that increases in prices and product shortages caused by supply chain issues were the main factors behind the decline.

Construction output in July 2021 was 1.8% below the pre-pandemic February 2020 level, with repair and maintenance being 0.6% above the February 2020 level. The recovery to date is also mixed at sector levels, with infrastructure being the best performing sector throughout the pandemic, at 35.7% above its pre-COVID February 2020 level. Private commercial work stood in stark contrast, being the worst performing sector over the pandemic, at 20.3% below its February 2020 level in July 2021.

New work declined by 1.1% while repair and maintenance fell by 2.4%. There was also a decline in monthly output in volume terms in July 2021; this came mainly from private housing, which saw declines in new work, and repair and maintenance of 7.5% and 6.2% respectively. This was driven by the impact of price increases, most likely caused by product shortages in the sector.

Along with this monthly fall, construction output fell by 0.6% in volume terms in the three months to July 2021. This was due to a fall in private housing repair and maintenance of 8.3%.

However, in contrast, new work saw a slight increase of 0.7% in the three months to July 2021, with the largest contributors to this growth being infrastructure and private industrial, which grew by 17.5% and 8.2% respectively.

Brian Berry, Chief Executive of the FMB, said: “Disappointingly, we once again see construction output fall, putting it below pre-coronavirus levels. We know that material price increases and skills shortages are contributing to the decline, with members telling us this is their number one issue. According to a recent FMB survey, 98% of builders are facing material price increases.

“Worryingly, new work and repair and maintenance in private housing are the main causes for this decline, which are the backbone of the workload for small builders. I’m concerned that despite the high demand for home improvements, something which could stimulate economic recovery, we see this sector on the decline. We must pull together as an industry and press government to ensure these issues are dealt with quickly.”

Commenting on the latest construction industry output update from the ONS, Stuart Law, CEO of the Assetz group, said: “While construction output continues to decrease month on month, house prices have not followed suit, partly as a result of this reduced supply. Although there has been some slowdown since the tapering of the stamp duty holiday, expectations that price growth will pick back up only increases pressure on housebuilders to meet demand for new homes to help moderate prices. However, difficulties accessing raw materials, labour shortages, increased transportation costs and the realities of post-Brexit trade are making it difficult for housebuilders to complete ongoing projects and get new ones off the ground.

“If we are to meet the Government’s target of building 300,000 new homes a year, housebuilders will need increased support and soon. SME housebuilders, in particular, are often faced with significant operational challenges as suppliers favour bigger businesses with larger purchasing agreements for key materials.

“Despite these difficulties, we’ve seen no shortage of housebuilders keen to leverage the current market appetite for new homes and have received hundreds of millions of pounds worth of loan applications for housebuilding projects over recent months. Nonetheless, increased support in the form of simplified planning processes and improved access to additional Government funding would be well received by such businesses – particularly the smaller firms across the industry – as they look to best navigate the myriad broader challenges currently facing them.”

Gareth Belsham, director of national property consultancy and surveyors Naismiths, commented: “It’s getting increasingly hard to dismiss construction’s supply woes as mere teething problems. Soaring prices for key materials like steel, timber and fuel aren’t just eating into builders’ margins. Widespread shortages and long delays are creating a creeping sense of uncertainty that is prompting some developers to contemplate pausing their developments until things calm down.

“The latest PMI data showed new orders are now coming in at the slowest rate since March.The slowdown is most worrying in private housebuilding, which has long been a star performer but saw levels of new work shrink by 7.5% in July. In some parts of the country the shortage of materials is so bad that contractors are struggling to fulfil the orders they do have.

“While sentiment across the industry remains generally upbeat, the supply chain problems are steadily stifling growth. With this latest fall in output, the industry is now a quarter of a billion pounds smaller than its pre-pandemic size.

“The recovery is still on, but it’s running out of steam and the road ahead is strewn not just with speed bumps but boulders too.”

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