Construction output: Increased interest rates concern for the housing market, says RSM

In December 2021, construction output was 0.3% above the February 2020 pre-pandemic level, with the monthly growth coming from a 3.5% surge in the volume of new work, according the latest Office of National Statistics (ONS) figures. However, with new order levels increasing by 9.2% in Q4 2021, the highest level since Q3 2017, some concerns remain regarding labour demands.  

Commenting on construction output data for December 2021, Kelly Boorman, partner and national head of Construction at RSM UK, said: ‘While the construction pipeline continues to improve with encouraging annual and monthly growth for 2021, the industry is under pressure to meet increased volumes despite continued labour shortages, inflation and the delivery of historic fixed price contracts. 

‘This coupled with the concern around rising interest rates, specifically in the first-time buyers’ market, indicates that while housing targets drive demand for new private housing, we are likely to see a decline in the demand for private housing for the first time since the pandemic started as first time buyers face increased financial pressures.

‘It is likely that this will result in the first-time buyers’ market for new private housing slowing towards the end of Q4 2022 as interest rates increase and house price growth stabilises, albeit the need for housebuilders to meet national targets, which might mask this predicted reduced output.’ 

Annual construction output increased by a record 12.7% in 2021, following a 14.9% decline in annual growth as a result of the coronavirus pandemic in 2020.