Housebuilding activity plummets to lowest level since pandemic

Housebuilding output fell in May at the steepest rate for three years, the latest construction PMI numbers showed. 

Work on residential building projects declined for the sixth month running to hit 42.7 on the index, published today by S&P Global/CIPS UK. Any score below 50 in the index indicates a decline in activity. 

If the pandemic-era downturn is discounted, this is the lowest reading for housebuilding for just over 14 years. 

Industrywide output rose modestly in May, with increased commercial and civil work compensating for the performance of residential. 

Total activity rose from 51.1 to 51.6 month-on-month, the fastest pace for three months. Meanwhile, the overall rate of input price inflation eased to its weakest level for 32 months. 

James Bailey, Director and Deals Leader for Housing at PwC UK, said data ”confirms the challenges faced by the housebuilding sector.”

He said rising interest rates, reduced mortgage availability and affordability, and wider caution around household finances against the cost of living crisis will “all continue to shape the outlook for the remainder of the year.”

Bailey added: ”“Housing is destined to be a key theme in the upcoming general election. It is important that all parties work collaboratively with the industry to create the right growth conditions for this important market.

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“Planning reform, more coherent linkages between infrastructure and housing delivery, and investment in skills and supply chains to increase the delivery of the right homes, in the right places at the right price points is critical.”

John Glen, chief economist at the Chartered Institute of Procurement & Supply, said the steep drop in housebuilding would “send a chill down the spine” of the UK economy. 

“The residential sub-sector is closely linked to consumer confidence and levels of spending,” he said.  

“A further hike in interest rates is expected this month and along with the relentless increase in the cost of living is making buyers hesitate about purchasing homes.  

“As a result, builder confidence was pinched to remain below the survey average, as business costs remained high and firms expanded their workforce numbers at only a modest pace as they were cautious about their own affordability rates.”