Materials and labour shortages now ‘key constraint’ on growth, CPA warns

Construction output is buoyant despite material and labour shortages now being the main constraint on growth, according to the latest forecast from the Construction Product Association (CPA).

Sharp cost increases for products and skilled labour are expected to persist for the next 12 months and are unlikely to improve significantly in the next six months, the CPA’s summer forecast said.

But despite a gloomy outlook for inputs, the analysis found that output would rise by 13.7% in 2021 and 6.3% in 2022, with infrastructure and private housebuilding expected to be the key drivers of growth.

Private housebuilding is predicted to top its pre-pandemic output next year, with output of £38.4bn in 2022, compared to £38.1bn in 2019.

Private housing repair, maintenance and improvements is also expected to remain strong after huge growth during the pandemic which saw it rise to more than 19% above pre-covid levels in March 2021.

The CPA said that most SME contractors are reporting projects lined up for at least the next six months.

House building starts are forecast to rise by 20.9% in 2021 and a further 9% in 2022, despite the government’s stamp duty holiday and Help to Buy schemes being restricted.

And overall housebuilding output has been upgraded from a 14% rise this year in the CPA’s spring forecast to 16%, with 8% growth expected in 2022.

But the £44.6bn output forecast for next year would still be behind the £44.8bn recorded in 2019 prior to the pandemic, indicating the scale of collapse seen as the market closed for several weeks last year.

And while infrastructure has been revised upwards to 9.7% next year, the CPA has revised the sector down to 23.4% this year owing to further delays and cost overruns on major projects.

The CPA also reported an “increase in client hesitancy” to sign off medium-sized projects leading to a slowdown in near-term work for the sector.

It said that outlook for the commercial sector is also still “subdued” because of fewer big projects, particularly a lack of new towers in London.

CPA economics director Noble Francis said: “The key constraint to the CPA construction forecasts remains the cost and availability of imported products and skilled labour. The sharp recovery for both UK construction and also in places such as the US, has led to sharp cost increases and extended lead times for some key products such as paints and varnishes, timber, roofing materials, copper and steel.”

He added that the shortages were of particular concern for SMEs, which account for 86% of construction employment.

“Whilst larger contractors and house builders have greater certainty in their pipelines of work and are better able to plan and purchase in advance, SMEs often purchase what they need on the day at builders merchants. This makes them subject to greater issues if supply is limited or costs have risen significantly, particularly for firms working on fixed price contracts.”

He said that contractors are also struggling with labour shortages for some key skills, with the issue made worse by the 42% fall in EU construction labour over the last four years.