Industry sentiment surveys suggests a growing industry while official statistics show declines in activity
The construction sector continues to send out mixed messages in the media, with sentiment surveys suggesting a growing industry while official statistics show declines in activity. There is often a lag between the release of official statistics and those termed “leading indicators” such as the Purchasing Managers Index. However, what is not in doubt is that construction had a subdued third quarter of the year as the previously strong housebuilding sector began to show signs of slowing growth.
The markets also turned sceptical towards housing and a number of the housebuilders stocks were downgraded over fears that increased regulation and skills shortages presented some difficult challenges. Certainly, the levels of growth in the residential sector have not been the same in 2015 as they were in 2014, but they are starting from a much higher base hence the slowdown in the growth rate. There was also the fact that the general election was in May, which had an impact on the sector as housebuilders waited to assess the new policy environment in which they would operate. But ever since the election the levels of growth have been more subdued. Why is this? Are the long-term indicators pointing to choppy waters ahead for housebuilding?
Rather than any impacts from regulation it appears to have been a combination of housebuilders simply building out their current pipeline and some acute skills shortages which would have a modest impact on output.
Looking ahead, I still think the outlook is positive for housebuilders. Yes, skills shortages do exist but there is evidence that the number of schemes that have reached contract award stage has started to increase significantly in the last month. This is most likely because housebuilders have now made progress on existing pipelines and are beginning to crystallise future plans across their land portfolio. The incentives from government for those saving to buy homes also remain in place and, while they are unlikely to solve the housing crisis, they are certain to provide a trading environment conducive to continued growth for the existing firms in the market.
Michael Dall is lead economist at Barbour ABI