While the headline figure for the latest ONS construction output statistics may show growth of 0.1% in July, the reality is that the industry is still treading water, writes Clive Docwra, managing director of property and construction consultancy McBains
This small increase was driven entirely by repair and maintenance, while new work fell by 0.4%, and private housing new work in particular fell by 4.9%. And, in the longer term, output was 2.3% lower than this time last year. For an industry the government is relying on to boost the economy by billions, this is an uncomfortable position to be in.
The issue was further underlined last week when Angela Rayner acknowledged that there is only a “slim chance” of the government meeting its 1.5m homes target by the next election. The ambition is there, but the question now is whether the conditions exist to turn it into work on the ground.
For housing, the government already has the funding mechanisms available through Homes England and the National Housing Delivery Fund (NHDF). Looking to the October Budget, the question should not simply be whether more money is announced but whether investment can be deployed quickly into projects that could start within the next 12–24 months.
A priority should be stalled and consented sites, and specifically we must focus on the ones that could start as soon as possible.
Rising costs put viability under pressure
Development viability is one barrier. Recent research from the Home Builders Federation (HBF) revealed that the cost of building a new home has increased by £76,000 since 2020 due to multiple factors, including higher material and labour costs, as well as regulatory requirements, taxes and levies.
Another poll showed that the industry is experiencing some of the sharpest cost rises in nearly 30 years as the Middle East conflict persists.
For developers, these pressures can change whether a scheme makes sense financially. A project that was viable when land was acquired may no longer be viable once regulatory and financing costs have increased.
The Budget could therefore look at targeted tax relief or deferral of development costs, particularly for projects where a scheme is viable but cannot currently get over the line.
Connecting skills to project pipelines
There is also another pressing problem – workforce shortages. The CITB estimates that the UK construction industry will need 41,200 additional workers annually between 2026 and 2030 (around 206,000 additional workers over five years) to meet demand and replace people leaving the industry.
The government’s proposed expansion of technical education, including the recent £96m construction skills funding package, are good moves. But we need to do more to connect the skills to the actual pipeline of work and the labour that projects need.
Similar to the plan recently announced in London, construction professionals, colleges and local and national government should be working together and to see which homes, infrastructure and retrofit projects are likely to come forward, what skills will they require and where the training ought to be concentrated. Specialised skills in environmental construction would also be beneficial – as this is a huge skills gap.
Accelerating retrofit could be another way to boost the sector. As we have seen with the record-breaking heat this summer, the impact of the climate on UK’s existing buildings remains a significant challenge.
An accelerated Warm Homes Plan and projects across social housing and large public buildings could offer a steady stream of construction work while also adapting the building stock and delivering the promised comfort and energy efficiency to Britain’s homes.
The industry will be awaiting the Budget with interest. Measures to address faster and more targeted deployment of investment, alongside solutions that address the specific viability and barriers preventing projects from starting, are on the wish list.
