Spending Review: Housebuilding at risk of double dip
Published:  25 October, 2010

UK: The construction industry will re-enter recession, due to the devastating cuts in the Spending Review, the Construction Products Association said.

The expected upswing in private sector work will not be sufficient to make up the industry's shortfall in work sending construction into a second downturn, CPA said.

More evidence of an impending 'double-dip' in the housebuilding sector emerged with NHBC housing starts falling 9% in September.

The Home Builders Federation index shows site visitors fell from -38 in July to -48 in August, and for net reservations to buy from -32 to -41. Its index for prices achieved during the month fell from +4 to - 10, the first negative figure since July 2009.

House sales fell in September for the second month in a row to 78 000, down from 82 000 in August and slightly lower than in September last year according to HM Revenue & Customs.The Council of Mortgage lenders reported total mortgage lending in September at £12bn, the lowest September figure since 2000, 1% lower than in August and 7% down on September last year.

Imtiaz Farookhi, chief executive of the NHBC, said: "The Spending Review has brought a reduction in funding for social housing and will, undoubtedly, have a knock-on effect for the sector as a whole and presents a significant threat to the fragile recovery we have experienced thus far."

Alastair Stewart, housing analyst at City investment bank Investec, said: "We see the serious risk of a double dip in house prices and land values." Investec downgraded its expectations on all major housebuilders, with the exception of Berkeley Group.

"Last week, government figures showed the net number of new homes built this year slumped 23% to an all-time record low: 128 680 net additional dwellings were provided last year compared with around 167 000 in 2008-09. This figure is even lower than the previous record low of 130 510. The North West saw the largest annual fall of 38%, followed by the South East, down 32%."

The Construction Products Association estimates that up to 769 schools and 81 038 homes will not be built or rebuilt by 2015 as a result of government spending plans.

Jonathan Hook, the head of UK construction and housebuilding at PricewaterhouseCoopers, said that there would be a 5% drop in overall construction output.

"Regional construction firms will find life pretty difficult and there will be more casualties," he said.

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