Experts warned the UK faces a “chronic lack of supply” for housing today after new data showed housebuilding fell at a rate only seen on the onset of the Covid-19 pandemic and the late 2000s global financial crisis.
The S&P Global / CIPS UK Construction PMI for residential work was just 39.6 in June, with any figure below 50 representing a decline. That was even lower than May’s figure, which was itself the lowest since the spring of 2020, and the lowest for a month not affected by Covid-19 since 2009.
“Aside from the lockdown-related fall in house building, the rate of contraction was the fastest since April 2009,” the report said. “Survey respondents widely commented on weaker demand due to rising borrowing costs and a subdued outlook for the housing market.”
Tim Moore, Economics Director at S&P Global Market Intelligence, which compiles the survey said that much higher interest rate expectations had led to “weaker housing market conditions”, as it becomes more costly to buy a house.
Kelly Boorman, partner and national head of construction at RSM UK, said the decline wasn’t just driven by low demand for home purchasing, but also a cutback in building of social housing.
“With mortgage rates set to rise above 7%, this is going to hammer affordability for first-time buyers and those with low deposits,” she said. “It is therefore no surprise that housebuilders are slowing down their pipeline of work and acting cautiously to protect their margins.
“In addition, registered social landlords are also scaling back on work, which is concerning because the UK is already falling behind its affordable housing targets. In the future, this is likely to lead to pent up demand and a chronic lack of supply.”
The housebuilding slowdown was enough to drag the UK’s overall construction output into decline for the month.
Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply (CIPS),also highlighted that builders had cut back on hiring new staff.
“Looking ahead, there were few reasons to be cheerful as optimism fell to its lowest since January,” he said. A large blot on the landscape was the fall in employment growth. With interest rates at the highest for 15 years and inflation four times over the Bank of England target, the sudden reduction in construction sector hiring is one of the red flags facing the UK economy at the moment.”
