The knock-on effect of the slide in the Chinese stock exchange is unlikely to feed through to reduced demand in the booming UK residential sector, according to Noble Francis, economics director of the Construction Products Association.
Francis was speaking after the CPA issued an upbeat forecast for the next four years, predicting that total construction output will increase by 4.9% in 2015, 4.2% in 2016 and 3.5% in 2017.
Private house building is once more anticipated to drive the growth, with a rise of 9% in 2015, followed by 5.5% in 2016 and 3.5% in 2017.
However, this upturn will have to offset the decline in the smaller public house building sector, currently absorbing the impact of government cuts to the rents they can charge, which is forecast to fall 10% in 2015, 5% in 2016 and then remain flat in 2017.
"In terms of a decline in Asian stock markets, especially China, remember that London, and London property especially, is seen as a ‘safe haven’ so even if markets decline elsewhere, there could be a movement of finance towards London."
Noble Francis, Construction Products Association
But infrastructure represents a growth area, with output forecast to rise 10.3% in 2015, 10.8% in 2016 and 10.4% in 2017.
According to Francis, the Asian slide could even benefit the sector. He told Construction Manager: “Remember that although 37% of London residential is purchased by those who were born overseas, the vast majority are people that live and work in the capital.
“Only 7% of Greater London property transactions are to foreign investors, those living abroad. In terms of a decline in Asian stock markets, especially China, remember that London, and London property especially, is seen as a ‘safe haven’ so even if markets decline elsewhere, there could be a movement of finance towards London.”
Overall, he believes that the conditions are in place for further growth in the private residential sector. “Looking at the private house building market, all the signs for key drivers are very positive – property transactions, real wages, mortgage availability and house prices are all rising.”
But, in agreement with a recent EC Harris report, he believes that lack of skilled labour is the biggest constraint on output – and the factor that could dampen growth figures in the future.
“Skilled labour cannot easily be imported short-term and takes years to train. Skills, especially in housing, appear to be where the main constraints are. In our latest Construction Trade Survey, only 16% of building contractors reported difficulties recruiting on-site trades in Q2 overall in construction.
“However, 49% of contractors reported that it was difficult to recruit bricklayers, 49% of contractors reported that it was difficult to recruit carpenters and 45% of contractors reported that plasterers were difficult to recruit, which are primarily used in housing.
“Given the forecasts we have overall for construction, it is likely that the labour shortages will get worse in housing and spread to other key sectors such as infrastructure.”
He concluded: “As the wider industry activity picks up, however, this issue is likely to spread across the industry. In the short-term, it is already putting upward pressure on costs. In the medium-term, the forecast growth will not be possible without significant investment in skills.”
