The rising price of materials and the increased cost of carrying out construction work are shaking the industry to its core.
With fewer new builds going ahead the housing deficit behind the housing crisis is only set to widen. And with house prices and private rents higher than ever, many more run the risk of homelessness this winter.
Between July and September last year, the number of dwellings on which building work had started was down by 19% on the previous quarter, according to building control figures compiled by the Department for Levelling-Up, Housing and Communities (DLHC).
During the same period, four percent fewer residential buildings were completed compared to between April and June.
Accepted planning permission applications for residential properties also fell by 12% in the year to September 22 - the total number of grants at its lowest since 2016. The crisis in the construction industry goes hand-in-hand with the country's housing crisis, the consequences of which will only increase in severity throughout the winter.
The cost of building materials has surged since early 2021, when the UK's departure from the EU caused supply shortages.
According to monthly statistics compiled by the Department for Business, Energy and Industrial Strategy (BEIS), materials costs were 15% higher in October on average relative to the previous year. The increase in the cost of building materials has inevitably led to significant inflation in the overall cost of construction.
The latest construction output index data released by the ONS show that new housing work was 10.5% more expensive in September than it was a year earlier. Vacancies in the construction industry also shot up since early 2021 - when the free movement of labour from the EU ceased.
The figure stood at 48,000 between September and November - the second-highest total on record and just under double that of the 26,000 reported during the same months two years ago. Separate ONS statistics show applications for construction jobs plummeted by 75% between March and April compared to the same period last year.
According to data compiled by business credit experts Creditsafe, more construction-related firms went into administration in November than during any month since the start of the pandemic . A total of 34 companies in the sector went into administration or administrative receivership last month. Many factors are to blame for the country's housing crisis, but most experts agree that too few new houses being built is chief among them.
According to the DLHC, 232,820 dwellings were added to England's housing stock between 2021 and 2022. Although this represents a 10% increase on the previous year's total, it remains far below the 340,000 new homes a year deemed necessary by the National Housing Federation.
The figure also lags behind the 2019 Conservative Party Manifesto pledge to build a further 300,000 new houses a year - an annual target seemingly destined to be scrapped entirely. In early December, Levelling-Up secretary Michael Gove confirmed mandatory housebuilding benchmark legislation would be removed from the Government's Levelling Up and Regeneration Bill, after 60 Conservative MPs called for it to be amended.
In a letter to the House of Commons, Mr Gove stated that going forward it "will be up to local authorities, working with their communities, to determine how many homes can actually be built."
With demand outpacing supply, UK house prices continue to go up. The average UK house price hit a record of £296,000 in October - £33,000 higher than it was a year ago. Private rents tell the same story, with the median monthly rent in England reaching an all-time high of £800 over the year to September, according to the Valuation Office Agency.
As a result, with persistent double-digit inflation and interest rate hikes dramatically increasing the cost of mortgages, ever fewer people are able to afford the home they want. Many may no longer be able to afford to house themselves at all, as homelessness charity Crisis states an inability to access affordable housing both causes and sustains homelessness.
Construction slowdown predicted until 2027
New work output in the construction industry will not reach pre-pandemic levels until 2027, according to new analysis from the Building Cost Information Service (BCIS).
As part of its quarterly data briefing, BCIS has revealed its short and long term forecast for UK construction – and the outlook remains challenging as the industry continues to grapple with the impact of Covid-19, Brexit and the war in Ukraine.
According to data collected and analysed by BCIS, total construction output has only just reached pre-pandemic levels, largely driven by growth in the repair and maintenance sector – but new work output is still below 2019 levels. Dr David Crosthwaite, Head of Consultancy Services at BCIS, said: “Our forecasts suggest new construction work output won’t return to pre-crises levels until late 2027 – that’s almost eight years of no real growth in the sector.
“Stagflation is a very real possibility, not only in our sector but across the wider economy. Little or no growth coupled with high inflation is a very poor environment for construction investment. “The positive news is that it appears supply constraints are easing, leading to costs and prices stabilising in the long run.
“We think inflation has peaked and we could be over the worst of it – all eyes are now turning to the length and depth of recession.”
Commercial construction – the biggest sub sector in the industry – has seen the largest decline in output over the past two years, with growth predicted to be minimal through to 2027, as requirements for retail and office space have fundamentally changed since the pandemic. BCIS also predicts a slowdown in the private housing sector over the next couple of years before a rebound – but output is still expected to remain below pre-crisis levels.
Dr Crosthwaite added: “The repair and maintenance sector will continue to grow, but sectors reliant on new investment will stagnate, as well as those relying on public spending and government borrowing. “Infrastructure output has grown and is predicted to continue – and spending may be used as a stimulant to boost the wider economy.”
Material cost increases have far outstripped labour cost increases, but BCIS forecasts material costs to decline and return to trend during 2023. Labour cost increases are expected to persist for slightly longer, returning to trend in 2025. High energy-use components, including steel, concrete and plasterboard, as well as specialist labour, are expected to continue to experience inflationary pressures until the energy crisis is abated.
David added: “Price increases are slowing, suggesting we’re past the peak of the inflationary problem. “The industry should be congratulated for weathering the economic headwinds over the past few years reasonably well.
“Our market conditions index suggests the impact of the latest crises have been less severe than the impact of the 2008 financial crash, which is encouraging – but the outlook for construction continues to be challenging for the immediate future.”