Housebuilding output to fall 11% this year, says CPA

Housebuilding output is predicted to fall by 11% this year, with the drop the steepest in any sector in construction, according to the latest forecast from the Construction Products Association.

The drop, prompted by a predicted 14% fall in private housing starts to 141,100, is the biggest contributor to an expected 4.7% fall in output according to the CPA’s latest winter forecast.

The CPA said that while it expects private housing starts to recover next year by 2%, housing completions and output are both expected to fall both this year and next. It predicts housing completions to falls 11% this year and a further 2% in 2024, while output will drop 1% more next year.

The construction industry overall is predicted to see a slow return to growth (+0.6%) in 2024, the long-term trajectory for the private housing market could go two ways, according to the products body.

The main forecast anticipates a soft landing, with a sharp decline in demand in the first quarter – driven by rising mortgage rates, falling real wages and poor consumer confidence, as well as a less friendly government policy environment – followed by a recovery this spring.

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In this scenario, the sector would still experience an 11% fall as housebuilders focus on completing existing developments – and this could fall even lower if demand does not recover from Spring as mortgage rates drop, as outlined in the CPA’s lower scenario.

The forecast is more optimistic than that produced by the Office of Budget Responsibility (OBR) alongside the Autumn Statement in November. The OBR published forecasts suggesting a cumulative 9.2% drop in house prices between the 2022/23 financial year and 2024/25, with private housing completions dropping from 174,450 this year to a low of 134,561 by 2025/26.

Private housing repair, maintenance and improvement is expected to fall further from the historic highs of 2021, as homeowners begin to delay smaller, discretionary improvement work.

A decline of 9% is forecast for this year, followed by slow growth of 1% in 2024, with energy-efficiency retrofit the one area set to buck the general trend.

CPA economics director Noble Francis said it was “worth keeping in mind the broader context” and that this recession is not likely to be nearly as severe as the one experienced after 2008, when output fell 15.3% over two years.

Some other areas of construction including infrastructure remain resilient, benefitting from publicly-funded megaprojects such as HS2, Thames Tideway Tunnel and Hinkley Point C, albeit growth in output is expected to slow due to cost inflation.

The sector’s output is predicted to grow 2.4% in 2023 and 2.5% in 2024.

Chancellor Jeremy Hunt said in the Autumn Statement that capital expenditure would be maintained in cash terms, meaning that current projects are likely to go overbudget and greater hesitancy about signing up to new schemes.

In the medium-term, projects towards the end of the government’s Spending Review are expected to be pushed back into the next review period due to budgetary constraints.

Francis said the resilience of the infrastructure sector meant it was “more important than ever that government maintains its commitments to meeting its own targets by investing in levelling up, its infrastructure pipeline and transitioning to Net Zero”.