Ray of light yet to pierce election gloom

The latest Glenigan Index shows that starts have still not recovered after an election related hiatus. While reflecting a short term shock rather than a change in the industry’s growth trajectory, the recent dearth of new projects will hold back output over the next 12 months. The underlying value of construction starts fell by 27% during the three months to July compared to a year earlier.

The decline over the period impacted on all construction industry sectors tracked by Glenigan, and on all but one part of the UK. North East England was the only region to see an upturn in starts compared to a year earlier.

Private housing was the least disastrous area during the latest period; starts fell by 8% compared to a year ago, well above the -27% average overall and sufficient to keep the private housing sector in growth mode when viewed over 2015 so far.

Social housing however saw a steep decline in starts. The flow of new activity has already been on a downward trend following a steep decline in projects being consented during 2014. Housing associations are now digesting a new set of challenges to their business and funding models as a result of the policies of the new Conservative government, such as a mandated reduction in rent levels and the mooted extension of the right to buy to their tenants. This will exacerbate what was already a fairly dreary outlook for social housing construction. The collapse in social housing starts was sufficient to pull Glenigan’s residential growth index down to -21%, despite the relatively positive private housing sector.

Non-residential activity suffered an even sharper 26% decline during the three months to July. The commercial, public  and industrial sectors all combined to drag the value of starts lower than a year earlier.

However civil engineering projects saw the sharpest decline, with the value of underlying project starts plummeting 45% against a strong performance in the same three months of 2014.

The North East saw a positive 13% increase in starts during the three months to July. The South West saw starts decline by a modest 1%; the first sign of improvement for the region since activity began to contract in April of 2014.

However there was no good news for any other of the UK’s nations or English regions. London, the South East, the West Midlands, Scotland and Northern Ireland all saw starts at just two thirds or less of the level of a year ago.

Outlook

Though construction starts have remained weak into July, an expanding development pipeline means that we continue to see the overhang from election related delays, rather than a weakening in client demand, as the primary drag on new activity. During the second quarter of 2015 the underlying value of approvals rose by 11% compared to a year earlier.

Moreover confidence, which radiated out from London across the UK during the course of 2014, remains strong in the regions. London and the South East both saw approvals decline during the second quarter, but every other part of Great Britain saw the value of work approved increase during the same period. Northern Ireland also saw approvals down relative to a year earlier. 

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