Government housing targets under more pressure as private sector workloads fall

Submitted by on Thu, 3.07.08

RICS UK construction market survey, Q2 2008

The declining number of residential new build developments is taking its toll on the construction sector with workloads falling at the most dramatic rate for over a decade, says the RICS UK Construction Market Survey published today (2 July 2008).

Construction workloads have declined at their fastest pace since Q3 1995, breaking more than 11 years of uninterrupted growth with 19 percent more Chartered Surveyors reporting a fall than a rise.  

The North of England recorded the least heavy falls in construction work in the UK and a slower pace of decline.  In the public housing, other public works and private industrial sectors, workloads fell, however, infrastructure workloads remained static.  In contrast to most of the UK, private commercial sector workloads picked up in the North region. But responding Chartered Surveyors’ profits expectations fell to the lowest level in the survey’s history.

Across the UK as a whole, the worst performing area by far is the private housing sector, with workloads declining at the fastest rate in the survey’s history (Q2 1994) with 39 per cent more Surveyors reporting a fall than a rise.  House builders, reacting to the market downturn and the credit crunch, have had no option but to severely limit output, putting the Government target of building three million new homes by 2020 even further out of reach. 240,000 new homes are needed each year to reach this target and with only 175,700 built in 2007, this is now becoming highly unlikely. 

Some sectors are still reporting small levels of growth such as infrastructure, with one percent more respondents reporting a rise than a fall (a drop of 11 per cent compared with Q1) and private industrial, with four percent reporting a rise than a fall (a drop of 12 per cent compared with Q1). 

Kevan Carrick, a partner in JK Property Consultants LLP and Policy Spokesman for RICS North East, said:  “Despite the ongoing tough economic climate, the North East is continuing to buck the national trend and although nationally we’ve seen workloads decrease, the outlook for the region is positive and confidence remains strong.  Whilst the regional market is, of course, subject to external pressures, we must work hard to ensure that the current state of optimism is maintained.”

Across the board, confidence in workloads has reached the lowest levels in the survey’s history and employment levels turning negative. In addition, profit expectations continue to decline and are becoming increasingly negative. Although prospects for the next twelve months do not provide much ground for optimism, the North was the only region where confidence in workloads and employment expectations did not turn negative.  

National RICS spokesman, senior economist David Stubbs said: 

“Up until now we have been seeing growth in the construction industry slowing down; however these figures show that workloads are actually falling in almost every sector. This decline can be attributed to the lack of availability of debt finances and the fall in prices, which is taking its toll on developers. If this pattern continues then the industry will have to start making significant cut backs. This downturn will also have a negative effect on housing targets, which will not be achieved at current levels of output.”