Following the worst construction recession in 35 years, there are signs that a recovery is underway. Although 2013 as a whole is set for a minor contraction, the nadir appears to have passed in Q1 and output is on the way up as the end of the year approaches. The Association is confident that annual growth will occur from 2014. And overall, output is expected to grow 19.0% by 2017.
In the short-term the strongest growth is expected to come from private housing, which is being driven by a recovery in the wider economy and supplemented with extensive policy support. The sharpest up-turn in private housing data coincided with the introduction of Help to Buy, which, building upon other policies such as FirstBuy and the Funding for Lending Scheme has enabled greater effective demand through lower deposit requirements and mortgage rates. In 2013 starts are expected to increase 19.0%, and in 2014 a further 15.0%. The aforementioned policies are expected to contribute significantly over the medium-term. In the longer-term, it is unlikely that the sector will
be capable of sustaining such high growth rates without policy stimulus. Nevertheless, growth is still expected until the end of the forecast horizon.
Infrastructure output experienced a contraction of 13.0% last year. But, with work on Europe’s largest construction project, ‘Crossrail’, taking place, and capital investment boosts announced by the Treasury, these should enable a recovery in 2013 and 2014, of 2.9% and 7.4% respectively. In the longer-term, improved prospects are contingent upon investment in replacement energy capacity across nuclear, offshore wind, gas and shale. As this feeds demand, output growth of 27.9% is expected between 2015 and 2017.
Private commercial output is one-third down on the pre-recession peak, following sharp falls across offices, retail and PFI work. However, the economic recovery, increasing business and consumer confidence, in addition to a steady workflow anticipated on PF2 should ensure recovery from the second half of 2014. Output is expected to rise 0.4% in 2014 before 5.7% growth in 2015.
Public sector, which accounts for one-third of total construction, is likely to act as a drag on the short-term recovery. Work in public non-housing, which covers education and health, is expected to fall 11% in 2013. After this, as capital investment cuts ease, the sector is expected to fall a further 2.4% in 2014 before a return to growth in 2015.
Over the next 18 months, private housing and infrastructure are expected to drive industry recovery. But, in the longer-term, for this recovery to be sustained, output in both of these sectors will need to continue to grow and, simultaneously, the industry will need to see both a recovery in private commercial and an end to cuts to capital expenditure in public sector.