Housebuilder confidence dented by fragile recovery

Published:  17 August, 2010

LONDON: The underlying value of private housing construction projects starting on site fell in the three months to July after six months of sustained growth.

According to the latest data from industry analysts Glenigan, 1950 projects worth £1.4bn started on site from May to July, compared to 2450 projects worth £2.5bn in the previous three months.

"Private housing had been a source of optimism as returning private sector confidence encouraged developers to invest in new work. The dip in the last three months highlights the fragility of the recovery," commented Glenigan economist James Abraham.

Mr Abraham continued: "The latest Glenigan data comes fast on the heels of the sharp 9% jump in second quarter construction output recorded by Office of National Statistics.

"Second quarter output has been buoyed by the earlier rise in project starts and industry efforts to make up time lost to bad weather at the start of the year. The weakening in new project starts over the last three months points to an easing in construction output growth during the second half of this year."

"While the decline in starts is not expected to continue to the end of 2010, the slowdown has diminished overall construction prospects," said Mr Abraham.

"New social housing projects have fallen sharply, with the three months to July over 40% down on a year ago according to Glenigan data. The shrinking pool of new work comes as the increase in government funds during the last financial year dry up. A recovery is not expected for the sector within the next two years."

This has left the Glenigan Residential Index for July, which tracks projects between the value of £250 000 and £100m, 22% down on a year ago. While social housing starts are likely to remain under pressure over the coming months, a mild recovery in private housing starts is anticipated at the end of the year as housebuilders capitalise on gradually improving market conditions.

The value of non-residential construction project starts also fell. Despite a return to growth in retail construction, the Glenigan Non-Residential Index for July is 14% down on a year ago.

"Office and industrial project starts remain weak while community & amenity, health and education have suffered from government cuts" commented Mr Abraham.

Civil engineering continues to be the industry bright spot with the Glenigan Civil Engineering Index for July 19% up on a year ago. While the growth rate in the underlying value of utility projects fell, infrastructure project starts increased by a third.

"In particular growth was boosted by two railway projects in the South East of England with a combined value of £160m that started on site in June" Mr Abraham noted.

Overall, the value of construction projects starting on site in the three months to July was 12% down on a year ago.

Looking ahead Mr Abraham commented "The outcome of the comprehensive spending review will weigh heavily on public sector starts over the next two years.

"Despite the good flow of retail and hotel projects over the past few months, private non-residential activity has been a disappointment.

"Improved business confidence and lending conditions have been slow to lift industrial and office starts. Nevertheless, a number of stalled schemes are once again being taken forward and an increase in project starts is expected by the end of the year."

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