Construction output bounces back to pre-pandemic levels

Construction output roared back with record growth in the third quarter of the year, driven by private housing.

Monthly construction output increased by 2.9% in September 2020 compared with August 2020, rising to £12,938 million, which was the highest level of output since March 2020, according to the latest ONS data.

Construction output grew by a record 41.7% in Quarter 3 (July to Sept) 2020 compared with Quarter 2 (Apr to June) 2020, following the record quarterly decline of 35.7% in Quarter 2 2020. The growth in Quarter 3 2020 is by far the largest since quarterly records began in Quarter 1 1997 and substantially larger than the previous record quarterly growth of 4.9% in Quarter 2 2010.

Quarter 3 2020 was the first quarter since Quarter 2 2018 where all three months in the quarter saw month-on-month growth. However, the rate of monthly growth has slowed throughout the quarter as construction output grew by 17.4% in July 2020 followed by growth of 3.8% in August 2020.

The growth of 2.9% in September 2020 was the fifth consecutive month of growth and was driven by growth in all sectors apart from public new housing, infrastructure and public other new work.

Only private new housing and infrastructure have recovered above their February 2020 pre-pandemic levels. All other types of work in September 2020 have yet to recover to pre-pandemic levels, with public new housing the furthest below its February 2020 level at 29.4%.

Anecdotal evidence from responders to both the BICS and the MBS suggested a continued return to activity across the construction sector in September 2020. However, health and safety measures such as social distancing, where businesses are working on premises and sites, still meant that the capacity and level of work are not at the same level experienced prior to these restrictions being imposed as a result of the coronavirus pandemic.

Andy Sommerville, Director of Search Acumen, said: “This latest data underlines the scale of the sharp bounce back the construction sector has undergone since the troughs of lockdown.

“Elevated output levels have been largely driven by a recovery of activity in the housing sector. Construction firms have increased housing supply in response to high demand from prospective buyers seeking to capitalise on the financial benefits offered through the higher Stamp Duty threshold.

“Looking forward, severe headwinds are forming that will likely curtail activity in the housing market and dampen construction activity. Concern is mounting over how the UK economy will withstand the reintroduction of lockdown measures in England. Buyers could now renege on big ticket purchases due to uncertainty over their future financial position and job prospects. Reduced demand may cause developers to scale back supply, hitting future output levels.

“However, developers may still be focused on building outside of cities given that home working practices continue under lockdown. City centre properties are becoming less desirable due to remote workers moving further away from their physical offices. This could increase construction activity in satellite towns and the north of England.

“Greater digitisation and enhanced use of technology should not be limited to the corporate sector. Improving access and the quality of data available to developers could help them better identify risks upfront, enabling them to make more informed decisions about developments. This should increase confidence in the market and prompt firms to increase the supply of housing.”

New work grew by 40.8% (£7,035 million) in Quarter 3 2020 because of record growth in all new work sectors. The largest contributor to this increase was private new housing, which grew by 84.4% (£3,860 million).

Evidence from the Business Impact of Coronavirus (COVID-19) Survey (BICS) survey shows that the construction industry respondents had a lower proportion of their workforce on partial or furlough leave than the average for all industries.

BICS Wave 14 data, which relate to the period 7 September to 20 September 2020, shows that construction industry respondents had 71.6% of their workforce at their normal place of work compared with the 55.8% average for all industries.

This was the second-highest of all industries, behind only “human health and social work activities”, and possibly illustrates how the construction industry returned to work quicker than other areas of the economy. Compared with other industries, there are likely to be a lower proportion of the workforce in the construction industry who are able to work remotely or away from their normal place of work, and these are likely to be those who undertake office and administrative work within the construction industry.

Total construction new orders increased by a record 89.2% (£5,234 million) in Quarter 3 (July to Sept) 2020 compared with Quarter 2 (Apr to June) 2020, following the record quarterly fall of 54.0% (£6,888 million) in Quarter 2 2020. This is the largest quarterly growth since records began in 1964, and substantially larger than the previous record of 36.8% in Quarter 3 2017, when several high-value contracts relating to High Speed 2 (HS2) were awarded.

Despite this record quarter-on-quarter growth, quarter-on-year all new work growth was 0.6% (£70 million). Aside from Quarter 2 2020, and Quarter 2 and Quarter 3 2019, new orders were last lower in Quarter 1 (Jan to Mar) 2013.

New housing grew by 88.7% (£1,527 million) in Quarter 3 2020, driven by 102.9% (£1,531 million) growth in private housing. This more than offset the 1.8% (£4 million) fall in public new housing, which was the only sector to decline in Quarter 3 2020. All other work grew by 89.4% (£3,707 million) because of increases across all sectors, the largest contributor of which was private commercial, which grew by 104.9% (£1,663 million) in Quarter 3 2020 compared with Quarter 2 2020.

Brian Berry, Chief Executive of the FMB, said: “The Government needs to seize the opportunity to set out a new strategy to upgrade our existing homes to make them greener and more energy-efficient. Short-term schemes only help in part. What is needed is a long-term strategy. The Chancellor should use the Spending Review to announce an extension to the Green Homes Grant scheme, to give businesses the confidence to take part, and accelerate growth in the construction sector. That means bringing forward the full £9.2 billion pledged in the manifesto so that the industry has a clear pipeline of work.

“It means identifying the skills gaps and investing in businesses that can do the training. We should also be making the most of the current trend for homeowners to extend and convert their homes, by cutting VAT to 5% on home improvements so that consumers have more money to invest in retrofit at the same time.”

Source: Show House News