Housing confidence dented by fragile recovery

The underlying value of private-housing construction projects starting on site fell in the three months to July after six months of sustained growth, according to the latest data from industry analyst Glenigan. 1950 projects worth £1.4 billion started on site from May to July compared to 2450 projects worth £2.6 billion in the previous three months. Glenigan economist James Abraham comments, ‘Private housing had been a source of optimism as returning private-sector confidence encouraged developers to invest in new work. The dip in the last three months highlights the fragility of the recovery.’

He continued, ‘The latest data comes fast on the heels of the sharp 9% jump in second-quarter construction output recorded by The Office for National Statistics. Second-quarter output has been buoyed by the earlier rise in project starts and industry efforts to make up time lost to bad weather at the start of the year. The weakening in new project starts over the last three months points to an easing in construction output growth during the second half of this year.;

While he does not expect the decline in starts to continue to the end of 2010, Mr Abraham says that the slowdown has diminished overall construction prospects.

New social-housing projects have fallen sharply, with the three months to July over 40% down on a year ago. This shrinking of new work comes as the increase in Government funds during the last financial year dries up. A recovery is not expected for the sector within the next two years.

The result is a 22% fall in the Glenigan residential index for July compared with a year ago. This index tracks projects with a value from £250 000 to £100 000. A mild recovery in private housing starts is expected at the end of the year as housebuilders capitalise on gradually improving market conditions.

The value of non-residential construction project starts also fell. Despite a return to growth in retail construction, the Glenigan non-residential index for July is 14% down on a year ago. Mr Abraham comments, ‘Office and industrial project starts remain weak, while community and amenity, health and education have suffered from Government cuts.

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