Private housing
workloads are upholding growth in the UK Construction sector, despite political
uncertainty, but supply is still falling short, according to the RICS UK
Construction and Infrastructure Market Survey, Q1 2019.
Once again,
workloads in private housing are holding up the construction sector, as a net
balance of +21% of contributors report a rise, compared to +20% in Q4.
While the strongest
sector, this is lower than pre-referendum, as political uncertainty and tax
changes have subdued growth in the sector in recent years. In the four quarters
preceding the referendum vote, 37% more respondents were reporting stronger growth
in this area.
To address the
shortage of housing, in the near term, the contribution to growth in workloads
provided by permitted development rights (PDR) is likely to remain a supportive
factor, but recent RICS research on commercial to residential conversions has
identified several areas of concern related to quality and design. The future
of PDR, and its contribution to the government's target of delivering 300,000
additional homes, will need to ensure that regulatory safeguards and minimum
dwelling standards are upheld.
Amidst ongoing
uncertainty, looking across construction as a whole, growth in workloads slowed
across nearly all sectors this quarter. At the headline level, only +9% more
respondents reported a rise in workloads this quarter, the lowest net balance
in six years.
In the public
sector, growth in activity slowed across both housing and non-housing.
Interestingly, workloads in infrastructure were also subdued this quarter as
only +11% more respondents reported a rise, down from +18% in Q4. Given
Government's focus on HS2 and Hinckley Point C, the rail and energy subsectors
appear more resilient to political turmoil, as respondents expect to see the
strongest growth in these areas over the next year.
As the survey
results remain subdued, surveyors continue to report the impact that financial
constraints are having on building activity. This quarter, 81% of surveyors
cite this as an issue, making this the highest reading recorded in the past
five years. Anecdotally respondents suggest that stricter conditions that are
being placed on firms by financial institutions are limiting growth, with SMEs
being particularly impacted.
Planning delays have
also been a long running concern for respondents to the survey. However, since
the start of 2018, these concerns have eased and while they are elevated they
are now in-line with the average of the past six years. This has the potential
to ease the housing shortage and speed up the delivery of developments.
Interestingly, the number of respondents reporting a shortage of skilled labour
reached its lowest level in five years. Whilst respondents still struggle to
employ all skill sets, particularly quantity surveyors, only +41% more
highlight this as an impediment to growth.
When broken down
however, +28% more respondents expect activity to rise in the coming year, up
from +24% in Q4, and +17% more respondents expect to see a rise in new hires
for the year ahead. Expectations on profit margins remain flat for the third
consecutive quarter, as tender price expectations slow.
Looking across the
UK regions, housing and infrastructure activity have supported workloads in the
South West, Wales, Midlands, East and the North, with workloads remaining
broadly flat elsewhere. Looking ahead, respondents in the North are the most
optimistic as they expect workloads to grow and more hires to take place (+43%
and +26% respectively).
Jeffrey Matsu, RICS
Economist commented: "Financial constraints continue to impede growth
across the industry as lenders respond to recent events such as Carillion and
Interserve with less generous lending criteria, particularly to SMEs. Although
market confidence has become more subdued in recent quarters, the outlook for
workloads and employment growth has modestly improved.
"While
prolonged Brexit-related uncertainty has taken a toll on business investment,
its resolution has the potential to unleash pent-up demand that can be
supportive of future growth."
