Private housing output to drop 9%

The Construction Products Association has sharply downgraded its forecast for construction output next year in light of the economic chaos that followed September’s mini-budget.

In the summer the body predicted a 0.4% decline in output in 2023 but this has now been revised to a fall of 3.9%, accounting for the impacts of wider economic recession and political uncertainty.


Source: HM Treasury

An austere fiscal policy from chancellor Jeremy Hunt could impact the infrastructure sector while rate rises are set to hobble private housing construction

The CPA predicts real wage decline and rising interest rates will adversely affect the sector, particularly demand for private housing new build and private housing repair, maintenance and improvement.

The viability of commercial construction and infrastructure projects are also likely to be impacted by economic headwinds, particularly the continuing concern over construction cost inflation.

Noble Francis, CPA economics director, said it was “worth keeping in mind that activity in the industry currently remains at a historically high level” but that construction would not be immune from the effects of falling spending alongside heavy inflation.

“The largest effects will unsurprisingly be on private housing and private housing repair and maintenance, given that they are reliant on households’ willingness and ability to spend,” he said.

Most major housebuilders have sold through to 2023 Q1 but the CPA said demand will be dampened by rising interest rates, which are expected to peak at 4%. Some existing homeowners may be forced to sell, adding further pressure to the market.

After growth of 3% in 2022, private housing output is now forecast to fall by 9% in 2023 before returning to 1% growth in 2024.

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Private housing repair and maintenance output, which has been decreasing since March 2022 and is expected to decline 4% in the year overall, will continue its slump next year, dropping 9% before returning to marginal growth in 2024.

Francis said major clients’ willingness to invest in new commercial developments will also be “tested” with a fall of 5.1% predicted for 2023 following a stagnant 2022.

Infrastructure, while the least affected by household finances and interest rates, will be “adversely affected by central government and local authority spending constraints” and increased pressure for austerity, he added.

Projects towards the end of the government’s Spending Review could get pushed back into the next review and councils may divert finance from infrastructure to cover the rising costs of basic repairs and maintenance.

Overall, after 5.2% growth in 2022, infrastructure output is forecast to rise by 1.6% in 2023 and 2.6% in 2024, driven largely by major projects such as HS2, Hinkley Point C and Thames Tideway.