CPA revises construction outlook

CPA revises construction outlook
Published: 26 November 2015

The Construction Products Association (CPA) expects further growth for the UK construction industry, although the latest forecast reflects a downward revision since the summer owing to a slowdown in third-quarter housing and commercial activity.

In a statement released earlier this week, the association said construction output is expected to increase 3.6 and 3.8 per cent in 2015 and 2016, respectively, revised down from 4.9 per cent and 4.2 per cent in the Summer Forecast.

Highlights from the forecasts include:
    •    Total construction output is forecast to rise 3.6 per cent in 2015 and 3.8 per cent in 2016.
    •    Private housing starts are anticipated to rise 7.0 per cent in 2015 and 5.0 per cent in 2016.
    •    Public housing starts are expected to fall 10.0 per cent in 2015 and 5.0 per cent in 2016.
    •    Infrastructure output is forecast to rise 13.2 per cent in 2015 and 7.6 per cent in 2016.
    •    Key risks include skills shortages and government austerity.
 
Dr Noble Francis, CPA economics director, commented: “We remain positive about prospects for the construction industry.  The slowdown in Q3 activity is expected to be temporary and construction output is expected to rise by 19.7 per cent between 2015 and 2019, driven by growth in the three largest construction sectors – private housing, commercial and infrastructure.

“Private housing starts are forecast to rise, with major house builders signalling their intention to build more homes over the next 12-18 months.  Help to Buy accounts for one quarter of newbuild purchases and will help to sustain demand.  House prices continue to increase in most regions, especially in London and the Southeast, illustrating a strong underlying demand.

“Public housing, however, is expected to be adversely affected by uncertainty and a lack of funding due to the extension of Right to Buy to housing associations and cuts to social rent.  As a result, public housing starts are estimated to fall 10.0 per cent in 2015 and a further 5.0 per cent in 2016.”

Dr Francis continued:  “The commercial sector is forecast to enjoy growth from 2016 averaging 3.9 per cent per year through to 2019.  New offices construction is expected to be the primary driver of this growth, with increasing activity in cities such as Birmingham and Manchester as well as growth in the capital. Retail construction is expected to improve but a consolidation of expansion plans by major supermarket chains will constrain growth rates.

“Infrastructure activity continues to thrive.  Output in the sector is forecast to grow 11.2 per cent on average per year between 2015 and 2019, supported in large part by the GBP411bn National Infrastructure Plan. The roads and energy subsectors will be strongest, but work is forecast to increase throughout the forecast period in all key subsectors – roads, energy, rail, water and sewerage.

“Whilst growth prospects in construction remain positive, there are significant risks.  Government austerity focusses on current spending rather than capital investment, but the risk remains that if government cannot reduce current spending as much as it anticipates, it may cut public construction projects to achieve its aims of eliminating the public sector deficit. In addition, within the construction industry, the key concerns regard skills shortages, which have already been reported in the housing sector but may become more prevalent across the wider industry over the next 12-18 months due to the forecast growth.”

Response to Chancellor's Spending Review
Commented on yesterday’s Budget Spending Review and Autumn Statement by Chancellor of the Exchequer George Osborne', Dr Diana Montgomery, chief executive of the CPA: “Though there were few surprises for our industry from the Chancellor, the most relevant highlights concern the new Apprenticeship Levy, the government’s plans for affordable housing and the confirmed support for industrial strategies throughout this Parliament.

In terms of housing, Dr Montgomery said: “The government’s plans for housing now include a total of 400,000 new ‘affordable’ homes by 2020, with support for Starter Homes and shared ownership schemes.  Our view continues to be that while we’re pleased with the government’s aim to help first time buyers, the housing crisis has less to do with supporting demand and more to do with increasing the supply.  Today’s plans – paired with a raft of measures addressing planning reforms, the release of appropriate land for housing and help for SME house builders – may go some way towards achieving that.”