House building has continued to drive growth in UK construction, accounting for a third of all contracts awarded in January, latest figures reveal.
Figures in Barbour ABI’s monthly Economic & Construction Market Review showed that residential construction contracts accounted for £1.87bn, or 36%, of the total £5.6bn of contracts awarded in January, a 2% increase on December and a huge 87.7% increase on the corresponding month last year.
The increased construction activity is likely to lead to a sharp rise in construction costs during the first half of 2014, according to a report by Deloitte Real Estate.
ABI figures show that the majority of housing contracts, by value, were in London, accounting for 29% of the UK total, with key projects including the £180m Clarges Estate redevelopment in Mayfair, 500 new housing units at Granville Road worth £140m and a £128m residential scheme in Southwark.
Commenting on the report, Michael Dall, lead economist at Barbour ABI, said: “It’s clear that government initiatives such as Help to Buy and record low interest rates are having a positive impact, but there is still concern that demand for new homes far outstrips the rate at which houses are coming onto the market. This month, the Labour Party outlined proposals to build at least 200,000 homes a year by 2020, and the issue is likely to be high on all the political party agendas as we head into the next election.”
These positive findings were reflected in the latest government figures, which showed the number of new house starts in England reached 122,590 in 2013, the highest level for six years and up 23% on the previous year.
Every area of the housing market experienced a jump, with starts by private builders and starts by housing associations each up 24% compared to 2012.
However, the number of homes completed fell by 5% to 109,370, the lowest level since 2010.
In addition, seasonally adjusted quarterly figures for October to December showed signs that starts and completions were tailing off, both down 1% compared with the preceding quarter. There were 32,320 starts during the quarter, 89% above the trough in the March quarter of 2009, but down a third compared to peak house building in the March quarter 2007.
Communities secretary Eric Pickles, said: “Last year we built the most homes since 2007, and even the appalling weather conditions this winter have not stopped our hardy builders from getting the job done. That means an increase in small firms benefiting from the surge in construction orders, and more business confidence in the economy.”
But increased construction costs are likely to be felt sharply in terms of costs. Deloitte’s Real Estate report predicts that cost increases will hit early trades first, including demolition, groundwork and concrete subcontractors, as well as smaller, complex jobs that are less attractive to contractors.
Cost increases will be felt more in “hot markets” such as London commercial and residential, as well as national distribution warehouses, said the report. They may have a more significant impact on projects currently underway as clients and main contractors may find they cannot deliver jobs at prices agreed recently, it warned.
The report states: “Jobs priced and committed in the past few months run a risk of being unable to hire subcontractors and trades at the costs expected in the original tender agreement.” However, it adds: “This threat will fade as the balance of work shifts to projects agreed more recently, but should be closely watched over the next six months.”
The report says there are also downward pressures on prices, including the flexibility of the UK labour market, increased innovation and new contracting and manufacturing entrants from overseas.
