The construction firm Stewart Milne entered administration last week following other large house builders, such as Merchant Homes, that have struggled in the declining housing market. The sector is facing an unprecedented environment of Covid hangover, rising interest rates and rising costs. The domino effect is just taking shape. Worryingly this is happening as we struggle to build an insufficient volume of new, desperately needed, homes.
Construction is the largest industry in the East of England, representing 17% of all businesses and £18bn of output according to the Construction Industry Training Board (CITB). House building, repairs and maintenance are among the strongest sub-sectors in the region comprising 45% of all output. This presents a solid foundation for a forecasted increase in the volume of construction and government aspirations for development in the East, including a plan to supercharge the Cambridge economy with 250,000 new homes.
Yet developments in the sector threaten this growth potential. Industry bodies in the region, such as the Home Building Federation, warned of a slowdown in the housing market back in March 2022. This has now started to take effect and could lead to an acute shortage of homes. As Professor Noble Francis, Construction Economics Director at the Bartlett School of Sustainable Construction, commented,
“There was a sharp fall in house building in December, as house builders continued to focus on cost minimisation and completions for the subdued level of demand rather than starting new developments, after the rise in mortgage rates in 2023 that priced out many buyers, especially first-time buyers.”
In the absence of real time data, the production and delivery of UK bricks is a helpful proxy for monthly house building starts. In November 2023, brick deliveries were 9.2% lower than in October and 32.5% lower than a year ago according to the Department for Business and Trade (DBT). Developers in the East of England have also been further impacted by government proposals to reduce the contamination of rivers and wetlands in protected sites, with Norfolk and the Fens among the most affected areas in the country. Achieving 'nutrient neutrality' by limiting pollution from construction to the water catchment poses another significant obstacle to meeting the region's housing needs.
The economic climate, combined with environmental and sustainability targets, means that conditions will remain extremely challenging to the sector, affecting output and employment prospects.
James Palmer, Chair – Eastern Powerhouse, said:
“Construction is one of the largest industries in the East of England and a number of our EPH members are house builders. Without government support for construction, to assist cash flow challenges, many construction companies will struggle to stay in business. Government has ambitions to build new homes in the region, but the capacity of the house building sector will be significantly eroded if more businesses enter difficulty. We cannot control rising interest rates and inflation. We need to help firms stay in business, to stimulate demand and reverse this market decline.”
Andy Hill, CEO - Hill Group, said:
"We're staring down a perfect storm of economic pressures, threatening jobs and investment in the East where we already face a critical shortage of homes. While we can't wish away inflation and high interest rates, we can't afford to stand idly by. We need immediate action from policymakers. More investment, expedited planning approvals, and removing the blockers to stalled developments is urgently required to address the region's housing needs."
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