Housebuilding output to remain below pre-covid level until 2023

Overall housebuilding output is unlikely to return to pre-pandemic levels either this year or next as concerns grow over the impact of materials shortages, according to the latest forecast from the Construction Products’ Association.

The CPA’s summer forecast, issued this morning, said it expects the housebuilding industry’s output to grow by 16% this year to £41.2bn, and then again by 8% to hit £44.6 in 2022. This is an improvement from its spring forecast, when it said it expected output to grow by 14% this year.

However, even this would be behind the £44.8bn of output recorded in 2019 prior to the pandemic, indicating the scale of collapse seen as the market closed last year.

The slow recovery is down to the bigger hit seen to public housing volumes in the wake of the pandemic, with output in that part of the sector falling 30% last year and not even recovering to pre-pandemic levels in 2023.

In contrast, however, the private housebuilding market, where output never fell as far, is predicted to top pre-pandemic output next year, with output of £38.4bn in 2022, compared to £38.1bn in 2019.

The CPA forecast estimates that housing starts will grow 24% this year and completions 15%, with rises of 10% and 8% respectively forecast for 2022.

The predictions of rapid growth come after months of surging house prices and high levels of home sales since last spring’s lockdown was lifted, prompting a wave of listed builders to raise profit expectations. Nationwide last month reported that prices were now more than 13% above the level seen a year ago.

However, the CPA said expectations of growth had to be tempered by the reality of persistent materials and labour shortages, which were “unlikely to improve significantly in the next six months” and were “likely to constrain the ability of construction activity to increase beyond the CPA forecast”.

The CPA said the materials shortages were being felt most acutely by SME builders who lacked long-term direct agreements with suppliers and were reliant on buying materials at builders’ merchants.

CPA economics director Noble Francis said the cost and availability of imported products and skilled labour was now the key constraint on output growth.

He said: “The sharp recovery for both UK construction and also in places such as the US, has led to sharp cost increases and extended lead times for some key products such as paints and varnishes, timber, roofing materials, copper and steel. This is of concern particularly for SMEs, which account for 86% of construction employment.

“While larger contractors and house builders have greater certainty in their pipelines of work and are better able to plan and purchase in advance, SMEs often purchase what they need on the day at builders merchants. This makes them subject to greater issues if supply is limited or costs have risen significantly, particularly for firms working on fixed price contracts.”