CPA: Construction Facing Worst Decline for More Than 30 Years

Construction activity is unlikely to return to growth until 2014, sparking the worst decline for 30 years, according to the latest Construction Industry Forecasts, which were published today by the Construction Products Association. Since the start of the economic downturn in 2007 more than £32bn of construction activity has been lost.

Commenting on today’s figures, Michael Ankers Chief Executive of the Construction Products Association said: ‘Although government is committed to cut capital expenditure by 20 per cent over the next four years, the hoped for robust recovery from the private sector, to compensate for these cuts, is not materialising. With both the commercial and housing sectors still performing badly, our latest Forecasts indicate that construction output will fall by more than one per cent this year, a further 3.6 per cent next year and no growth in 2013. Recovery finally arrives in 2014, but by then we will have experienced the worst decline in construction activity for more than 30 years. It is essential that more is done by government to kick start the economic recovery.

‘Despite the government’s desire to support housing recovery, housing starts in 2012 will be the second lowest year since 1945. Private sector housing is slowly recovering. Unfortunately public sector housing starts are forecast to fall by a third, leading to an overall reduction in the total number of housing starts in 2011 and 2012. By the end of the forecast period we will have a shortfall of more than two million homes in the UK.

‘Equally worrying is the commercial sector, the largest construction sector and a bellwether for private sector activity. Although commercial construction in central London is buoyant, there is little activity in rest of the country. As a result this sector is expected to see a fall of three per cent in 2011 and four per cent in 2012 before a return to growth in 2013.

‘On a more positive note infrastructure output is set to grow throughout the forecast period, driven by considerable increases in rail and energy related work, even though road expenditure continues to decline. During this period rail infrastructure will see growth by almost 80 per cent and construction of energy related projects by a massive 200 per cent.

‘Government recognises that construction is a key part of economic recovery, yet these forecasts herald a very difficult few years, not just for construction but for the wider economy. It is therefore essential that the government uses the Autumn Statement to stimulate recovery by rebalancing the economy between current and capital spending. Government’s own figures show current expenditure rising from £632bn this year to £694bn in 2014/15, whilst capital expenditure is cut from £61bn to £42bn over the same period. Rebalancing this could make way for the £5bn package of essential infrastructure investment that many commentators have called for.

‘Similarly government must do more to stimulate house building and help first-time buyers onto the housing ladder. The announcement about the release of public sector land is welcome, but it is access to finance, not development that is currently holding back the housing market. Government therefore needs to look at mortgage indemnity guarantee schemes, or government backed savings scheme for first-time buyers to help ease this situation.

‘Finally the government must do more to support the Green Deal programme. The stimulus to the economy and the benefits to our industry could be huge. However, without a fiscal stimulus, such as a reduction to five per cent in VAT for all Green Deal compliant work, Green Deal is unlikely to be successful. It is essential the Chancellor uses the Autumn Statement to address these issues as without these stimuli, the next few years will be very bleak indeed for the UK economy.’

Other key findings in the Forecasts include:

Total housing starts to fall one per cent in 2011 and a further four per cent in 2012
Public construction including PFI to fall 24 per cent by 2014
Education construction to fall 41per cent by 2014
Health construction to fall 45 per cent by 2014
Private sector construction to rise 18 per cent by 2015
Construction of commercial offices to rise five per cent in 2012 and 14 per cent in 2013

Avani Raval
External Affairs Executive
Construction Products Association
26 Store Street
London WC1E 7BT
Tel: 020 7323 3770
Fax: 020 7323 0307