The forecast for the housebuilding sector in the UK

Posted by Mark Lloyd, Property Master Academy on 30 September 2019 | Comments

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In a year of uncertainty for the UK’s housebuilding sector, the Construction Products Association’s forecasts for UK construction activity have been downgraded.(1)

But while the continuing ambiguity over the UK's withdrawal from the EU has made growth estimates weaker, it’s not all doom and gloom.

bexit house prices

The UK’s housing shortage

A House of Commons briefing paper published on 12 December 2018 stated that between 240,000 and 350,000 new homes a year need to be built to address Britain’s chronic housing shortage.

Meanwhile, the National House Building Council (NHBC) reported on 1 November 2018 a record number of 43,578 new homes completed in the third quarter of that year. NHBC members build around 80% of all new homes. (2)

Even if this record output is repeated every quarter, it still doesn’t meet the estimated required demand. Therefore, there’s still huge potential for growth.

House price predictions

A consequence of this supply and demand situation is the effect on house prices.

Generally, in a market with a significant shortage of supply compared to demand, there would be price increases. But that’s not happening, with very little, if no, increase in the average price of homes in 2019.

Again, the implications of Brexit are being felt. Predictions on its impact range from those who say house prices could fall by as much as 35% to those who think there will be little or no impact at all.

There are, however, notable regional variations in national average house prices. Rightmove predicts prices in the north of England will increase by between 2% and 4%, while those in the capital may fall by 2%, and in Greater London by 1%. (3)

Housebuilders will target those areas where property prices are rising.

Prospects for industry growth

In the housebuilding industry, private housing and infrastructure sectors are the most significant drivers of growth.

The Government's Help to Buy scheme has been extended to March 2023 and continues to encourage housebuilding activity.

Meanwhile, the infrastructure sector is being driven by large projects such as HS2, Thames Tideway and Hinkley Point C. Investment in a region’s supporting infrastructure is likely to generate potential for profitable housebuilding projects.

A construction industry forecast by Experian predicts continued moderate growth in house construction that’s likely to be boosted by more investment in major infrastructure projects. (4)

The HS2 rail development is expected to create a huge shift in the balance between the north and south of the country.

Regeneration of rundown areas

As well as supply and demand, and investment in infrastructures to support new development, housebuilding opportunities are also coming from efforts to regenerate rundown areas.

Currently, regeneration projects are going on across the country. The construction industry consultancy, Potter Raper, lists 100 of these major and smaller urban renewal initiatives.(5)

UK housebuilders will be quick to see the potential in these regeneration projects designed to breathe much needed new life into some depressed areas. It’s not just the volume of new builds but also the type. A diversity of housing is required to meet different social needs; therefore, plans should take into account affordability.

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Sources:

1 Construction Products
https://www.constructionproducts.org.uk/news-media-events/news/2019/april/construction-forecasts-revised-down-due-to-prolonged-brexit-uncertainty/

2 National House Building Council
http://www.nhbc.co.uk/media-centre/articles/statistics/Q3-Stats-2018/

3 Rightmove
https://www.rightmove.co.uk/news/articles/property-news/we-forecast-overall-flat-prices-of-0-in-2019-house-price-prediction/

4 Experian
https://www.experian.co.uk/assets/economics/samples/uk-construction-forecast-sample.pdf

5 Potter Raper
http://www.potterraper.co.uk/newspdf/Top100.pdf