CONSTRUCTION OUTPUT fell by 1.6% in July 2021, as shortages and prices are blamed for taking it below the pre-pandemic February 2020 level again.
In the latest figures from the Office of National Statistics, new work, and repair and maintenance both contributed to the monthly decline in July 202. The ONS says anecdotal evidence from businesses suggests that price increases and product shortages caused by supply chain issues were the main reasons for the decline, despite healthy order books.
The level of construction output in July 2021 was 1.8% (£257 million) below the February 2020 pre-pandemic level. New work was 3.2% (£285 million) below the February 2020 level. Repair and maintenance work fared the best at 0.6% (£27 million) above the February 2020 level.
The recovery to date is mixed at a sector level, with infrastructure the best performing sector over the pandemic at 35.7% (£649 million) above its February 2020 level. Private commercial was the worst performing sector over the pandemic at 20.3% (£481 million) below their respective February 2020 levels in July 2021.
Monthly construction output fell by 1.6% in volume terms in July 2021 because of declines in both new work (1.1%) and repair and maintenance (2.4%).
Private Housing Output
The decline in monthly output in July 2021 came mainly from private housing, which saw falls in both new work, and repair and maintenance of 7.5% and 6.2% respectively. This was driven by the impact of price increases, the ONS says, most likely caused by product shortages in the sector.
ONS points to the Monthly Business Survey for Construction and Allied Trades explaining that price increases are being caused by delays in the availability of construction products (most notably steel, concrete, timber and glass), because of supply chain shortages. However, housing demand is still strong with quarterly new orders up by 2.9% during April to June 2021.
The price rises are reflected in the implied deflator of housing costs, which ONS says is the best indicator of price changes in the industry currently. This is the percentage amount ONS deducts from house prices to measure annual rates of growth. In July 2021 the total housing implied deflator is 5.7%. It has only been stronger in January 2014 (5.9%) in the last decade.
The other measure of prices ONS is using is the Business Insights and Conditions Survey (BICS). In the latest data, half of businesses are reporting price increases above normal expectations. The latest Building Materials release from BEIS released on 1 September reported here also shows building materials price rises in July 2021, up 20.1% compared with July 2020.
Alongside the monthly fall, construction output by volume fell by 0.6% in the three months to July 2021 – the first three-monthly fall since February 2021. The fall was driven by a fall in repair and maintenance of 2.9%, mainly because of a fall in private housing repair and maintenance, of 8.3%.
New work saw an increase of 0.7% in the three months to July 2021; the largest contributors to this growth were infrastructure and private industrial, which grew by 17.5% and 8.2% respectively.
Gareth Belsham, director of the national property consultancy and surveyors Naismiths, said:
“Soaring prices for key materials like steel, timber and fuel aren’t just eating into builders’ margins. Widespread shortages and long delays are creating a creeping sense of uncertainty that is prompting some developers to contemplate pausing their developments until things calm down.
“The latest PMI data showed new orders are now coming in at the slowest rate since March. The slowdown is most worrying in private housebuilding, which has long been a star performer but saw levels of new work shrink by 7.5% in July.
“In some parts of the country the shortage of materials is so bad that contractors are struggling to fulfil the orders they do have.
“While sentiment across the industry remains generally upbeat, the supply chain problems are steadily stifling growth. With this latest fall in output, the industry is now a quarter of a billion Pounds smaller than its pre-pandemic size. The recovery is still on, but it’s running out of steam and the road ahead is strewn not just with speed bumps but boulders too.”
New Work Drying Up
Clive Docwra, Managing Director of property and construction consultancy McBains, said:
“This, the fourth monthly fall in output and the first to show a return to pre-pandemic levels, proves that the sector is continuing to struggle to bounce back from the pandemic.
“New work in particular is drying up, with new contracts down more than 3% compared to February 2020, with private commercial work in particular down over 20%.
“This is not a reflection of confidence in the market, but because of a continuing shortage of materials – especially imported timber which has seen price rises of more than 60 per cent over the last year – in conjunction with shortages in other materials and skilled labour resources.
”Price rises are already evident in recent tender returns which in turn could fuel wider inflationary pressures. Private housing and repair and maintenance have been responsible for leading a rise in output in recent months, but these sectors in particular require a lot of timber, and this is reflected by the £217m decline in private housing new work, and £110m fall in repair and maintenance work.
“Skills shortages are also biting hard, particularly in bricklaying, which is hampering work expansion.”
Brian Berry, Chief Executive of the FMB, said: “Disappointingly, we once again see construction output fall, putting it below pre-coronavirus levels. We know that material price increases and skills shortages are contributing to the decline, with members telling us this is their number one issue.
“According to a recent FMB survey 98% of builders are facing material price increases. Worryingly, new work and repair and maintenance in private housing are the main causes for this decline, which are the backbone of the workload for small builders. I’m concerned that despite the high demand for home improvements, something which could stimulate economic recovery, we see this sector on the decline.
“We must pull together as an industry and press government to ensure these issues are dealt with quickly.”