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Growth in new housing is projected

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World Cement,

The UK’s residential construction sector has floundered in recent quarters, and despite government plans to support the expansion in the housing supply, a return to the rapid pace of growth in 2014 is not assured.

There has been great volatility in trends in new housing output in recent years. After three years of relative slow growth, the sector soared in 2014, posting an expansion of 25% in new housing output in real terms, according to ONS statistics. However, in 2015 the estimated growth in new housing stood at just 1.3%.

Nevertheless, growth in residential housing is expected to show signs of recovery over the next five years, according to the projections from Timetric’s Construction Intelligence Centre (CIC). Assuming the government manages to generate some momentum behind its plans and that improvements in the regulatory environment take hold, Timetric’s CIC forecasts that residential construction output will expand at an annual average of 3-4% in real terms in 2016-2020.

However, there are downside risks to this forecast. Although the Bank of England has recently indicated that a tightening monetary policy will be further delayed, increases in interest rates are expected in 2017, and this will start to put greater pressure on housing affordability. Although increases in interest rates will be slow and steady, the fact that the UK remains heavily reliant on high levels of household debt to drive growth, the higher cost of credit could stifle demand for new housing as a result.

Joe Sawyer, Economist at Timetric’s CIC comments: “Following the increases in stamp duty for high-end properties and a reduction in buy-to-let tax relief, domestic and foreign investor interest in the UK’s property market could dwindle, especially in London and the South East where stamp duty changes will have the most notable impact.”

“Another factor that could slow the pace of growth in residential construction is Britain’s potential exit from the European Union following a planned referendum, possibly in 2016. A tightly contested referendum will do little to support investor confidence, and the UK’s construction industry would take a hit,” says Sawyer.

Despite these factors, the fundamentals of the UK residential construction sector, in particular the shortage in housing stock, suggest that the sector will remain on a long-term upward trajectory. If the CIC’s central assumptions hold, the sector will generate an output value of around GBP70 billion in 2020 compared to £56.5 billion in 2015, ensuring significant opportunities for residential developers and contractors.

Adapted from press release by Joseph Green

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