Housing Shortage Could Worsen

The volume of new homes coming onto the market could fall further, despite the fact that housing supply is at an 80-year low, according to a report.

Sentiment in the building sector began to decline again in the second quarter of the year, as fears over the scale of public spending cuts and ongoing uncertainty about prospects for the economy hit the construction industry, says the latest RICS Construction Market Survey.

Despite some encouraging signs at the beginning of the year, the latest data shows 7% more surveyors reporting a fall than rise in total construction workloads. This is in comparison to the previous quarter where 5% more surveyors reported rising, rather than falling workloads.

Perhaps unsurprisingly, in light of cuts to budgets, public housing and other public works were the worst affected sectors. The large fall in the public works sector has been attributed to the suspension of the Building Schools for the Future programme (BSF).

Simon Rubinsohn, RICS chief economist, said: "This survey suggests that it is too early to conclude that the construction industry is on the road to recovery despite the strong contribution the sector appeared to make to the latest GDP data. Significantly, spending cuts are already having an adverse effect on sentiment and although the cost of tradesmen and overheads continue to fall, raw material prices are rising - creating a difficult operating atmosphere.

"Surveyors are also reporting an increase in competition for work as larger firms bid for smaller projects. Meanwhile, a continued lack of clarity from the government on existing projects is adding to the uncertainty. Given all these factors, it's of little wonder respondents to the survey are feeling gloomy."

What House? says: ‘Although the number of private residential projects being built remains broadly unchanged - there are some concerns moving forward. The fact that most sectors of the construction industry experienced a drop in workloads will mean fewer new and improved infrastructure facilities such as roads and schools are built. This may have a knock on effect on the housing industry - namely, a reduction in the supply of new homes being built in certain areas.

‘Any further falls in the supply of new homes coming onto the market will augment the housing shortage problem in this country, and will undoubtedly place added pressure on property prices, causing them to rise, due to a widening in the supply-demand imbalance.'