UK Construction Market Report 3Q 2024
Other factors
Key statistics:
New government priorities
of respondents think construction and real estate are priorities for the new government.
Planning reform
of those who took our survey said mandatory housebuilding targets for local authorities is the most important planning reform policy for improving project delivery.
Building on green belt land
of respondents agree with building on green belt land for schemes which are considered nationally significant infrastructure projects.
Gross domestic product (GDP)
According to ONS data, monthly GDP is estimated to have grown by 0.4% in the month to May.
Moreover, estimates suggest that GDP expanded by 0.9% in the three months to May 2024, marking the strongest three-monthly growth since January 2022.
After becoming the joint fastest-growing economy in the G7 during the first quarter this year, many economists think this could be repeated in the second quarter.
In fact, economists now predict an annual growth rate approaching 1%, up from 0.5% at the start of the year.
Favourable factors such as inflation holding at 2% and continued wage growth are boosting household disposable income and consumer spending, which rose by 0.7% and 0.4%, respectively, in the first quarter.
Therefore, the foundations are the strongest they have been since the pandemic for the new government to fulfil its vow to make the UK the fastest-growing economy in the world.
Public sector net borrowing
Public sector net borrowing, excluding public sector banks was £14.5 billion in June 2024 — £3.2 billion less than that borrowed in June 2023.
However, borrowing in June was the sixth highest June borrowing figure since monthly records began in 1993 and £2.9 billion higher than the £11.6 billion forecast by the Office for Budget Responsibility (OBR).
The figure demonstrates the extent to which the previous government spent more than it received in taxes and other income, with alleged “overspending” becoming a point of contention between Labour and the Conservatives leading up to the Budget on 30 October 2024.
Data from the ONS shows that interest on government debt was £7.4 billion in June, down £5.5 billion year-on-year.
Government debt in June is estimated at 99.5% of GDP — up 2.8% year-on-year.
The figures highlight the difficult choices the new government will have to make in funding its ambitions, with debt levels last seen in the 1960s. Inevitably, tax rises now appear likely in the next Budget. £22 billion fiscal black hole
The new government has previously said it will not borrow to fund "day-to-day costs", only using money raised through tax revenue to pay for current expenditure.
Chancellor Rachel Reeves has instructed government departments to find savings totalling £3 billion to help fund an approved pay deal for public sector workers costing £9.4 billion. The remaining two-thirds will be funded by central government.
The result of the pay awards and recalculated departmental spending was a "£22 billion black hole in the public finances" for this year, which necessitates immediate spending reductions, according to the chancellor.
Infrastructure projects such as the A27 Arundel Bypass and Stonehenge Tunnel are among the first to be scrapped. Meanwhile, a review is to be held on the New Hospital Programme and the previous government's "40 hospitals by 2030" commitment.
Construction activity and output
According to ONS figures, monthly construction output is estimated to have grown by 1.9% in volume terms in May 2024; following a fall of 1.1% in April 2024.
This follows construction output's decrease of 0.7% in the three months to May. Similar to the previous quarter, this came from a decrease in new work (3.0% fall) and a fall in repair and maintenance by 0.3%.
However, eight out of the nine sectors saw growth in May 2024, with the main contributors to the monthly increase being new housing at 2.8%, infrastructure new work at 3.5% and non-housing repair and maintenance, which grew by 2.1% on the month.
The ONS figures note the impact of the weather, helping construction become one of the strongest sectors of the economy in May, which was the warmest on record. Poorer weather earlier in the year has hindered work on building sites.
While the 2.8% increase in housebuilding is encouraging, it is worth noting that this rise comes off a low base earlier in the year. Nevertheless, developers will be hoping a further cut in interest rates during the second half of the year can help maintain momentum by facilitating project viability along with mandatory housebuilding targets for local authorities.
At 47%, a slight majority of respondents say the new government will be better for construction and real estate, with over two-thirds thinking the sectors are priorities.
The construction industry featured in the legislative agenda set out by the King's Speech, announcing the Planning and Infrastructure Bill, which is intended to accelerate the delivery of "high-quality infrastructure and housing."
The speech referred to modernising planning committees and increasing planning authority capacity, which follows Labour's manifesto pledge to appoint 300 new planning officers.
This pledge will help make a difference, but more recruitment and innovation across the planning system will be required if ambitious development targets such as 1.5 million new homes over the next five years are to be met.
Planning decision-making has become slower, leading to record low approval levels. In its briefing notes for the King's Speech, the government states that only 9% of local planning authorities determine 70% or more non-major applications within the statutory eight-week time limit.
Nearly 57% of respondents believe that the plan to merge the National Infrastructure Commission (NIC) and Infrastructure and Project Authority (IPA) to create the National Infrastructure and Transformation Authority (NISTA) will improve project delivery.
It follows Labour's manifesto pledge to create a "new, powerful" organisation influenced by its findings in the Major Capital Projects Review. A new centre of excellence capable of marrying strategy and delivery would set the planning, design and cost criteria projects must meet before funding is released.
Therefore, NISTA should take a strategic view of project delivery while continuing the IPA's work on digital transformation and being jointly accountable to the Treasury and the Cabinet Office.
Analysis by Boston Consulting Group shows that the UK is one of the most expensive and slowest countries to deliver new infrastructure, with much of the blame apportioned to the planning system.
The IPA's annual review of UK major projects reflects this inertia. The number of schemes slipping into the "appears unachievable" bracket has doubled since 2020. Over 200 projects in its 2023 report were below "delivery appears probable."
The Planning and Infrastructure Bill also aims to simplify the process of granting consent to major infrastructure projects. It would enable "new and improved" national policy statements that drive forward government policy, with a review process to update them every five years.
England's onshore wind capacity has been virtually unchanged since the end of 2017 at just over 3,000 megawatts. Aims to double onshore wind energy by 2030 follow an immediate removal of England's de facto ban on onshore wind since 2015.
The NIC states that failure to speed up infrastructure delivery plans in the next five years could constrain economic growth and threaten climate targets.
Almost a third of respondents selected mandatory housebuilding targets for local authorities as the most important planning reform policy.
An eight-week consultation is underway on changes to the National Planning Policy Framework (NPPF), the guidelines that govern the planning system.
Mandatory housebuilding targets would be reintroduced, with a per-year national target of 370,000 new homes. Councils would be provided with new calculations to determine how many new homes are needed in their area, moving away from population-based projections to a wider metric connected to housing stock and need.
Over 10% (14%) of respondents acknowledged the importance of Local Plans, as only a third of local authorities currently have one. Under the new proposals, all councils would be required to have a workable Local Plan in operation within a year.
Deputy Prime Minister Angela Rayner confirmed to parliament last month that existing Local Plans would not need to be redrawn from scratch but rather incorporate the new method of using housing stock to set a baseline.
The previous household projection method received criticism for being out of date as the last government locked in 2014 projections to guard against volatility. By projecting forward past trends, household projections have also resulted in artificially low figures in some areas.
It is proposed that 0.8% of existing stock be used in each local authority as a baseline starting point, thereby ensuring that every part of the country contributes to a share of the national total proportionate to the size of its current housing market.
Basing the approach on stock also helps to reinforce development in existing urban areas, meaning new homes can maximise existing infrastructure such as public transport and schools.
Government analysis suggests that housing requirements in adopted plans only add up to approximately 230,000 homes per annum. Moreover, the latest OBR forecast indicates that the number of net additions will fall below 200,000 homes this year.
Ultimately, if the government’s aim for 1.5 million new homes in the next five years is to be delivered, then the insights gleaned from the construction industry’s input to the consultation must be considered, with continued stakeholder engagement throughout the parliamentary term.
A slight majority of respondents, 57%, disagree with building nationally significant infrastructure projects on green belt land.
The government will set out new policy intentions for critical infrastructure in the coming months, ahead of an update to relevant national policy statements within the next year.
In the meantime, the government states that brownfield land must be the first option for local authorities to allocate for development, but with "a more strategic system for green belt release." This includes the freeing up of "grey belt" land — lesser-quality areas of the green belt, such as disused car parks and wastelands that make a limited contribution to the green belt's purposes, as set out in paragraph 143 of the current NPPF.
The government's "golden rules" are that grey belt sites will only be built on if half of the homes are affordable, the plans enhance the local environment and the necessary infrastructure, such as schools and GP surgeries, is in place.
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