Construction PMI: UK housebuilding continues downward trend amid slowdown in buyer demand
The headline construction PMI for August rose to 45.5 from 44.3 in July, according to the latest PMI data by S&P and CIPS.
Commercial activity was the main contributor to the uptick, however, civil engineering activity and housing activity both saw falls, down to 38.1 and 44.2 respectively.
Kelly Boorman, National Head of Construction at RSM UK, said: “The headline PMI increased slightly in August mainly driven by uptick in commercial activity as consumer confidence and back-to-the-office calls fuel city centre investment.
“Despite the government’s recent announcement to ease mortgage rules and remove barriers to home ownership, we’re yet to see this stimulate demand and accelerate housebuilding. There are also further challenges for housebuilders as although lower interest rates and softer debt conditions support investment and improve affordability for first time buyers, current levels remain well below national housing targets.
“Incentives for buyers have become a priority for housebuilders, driven by slower-than-expected uptake and the flattening of mortgage rates, which have dampened buyer enthusiasm. As a result, many developers are ramping up efforts to deliver more affordable housing in order to maintain volume and meet targets. However, these efforts are being challenged by broader macroeconomic pressures. With ongoing geopolitical conflicts and labour shortages, the supply chain is likely to tighten, especially as demand for new homes and material costs fluctuate.
“The slowdown in planning approvals is also counterproductive and businesses are feeling uncertain ahead of the Autumn Budget, with potential punitive property tax changes looming. To improve housebuilding pipelines and boost business confidence, it’s key that the government addresses these structural barriers while supporting affordability initiatives that stimulate demand.”
She added: “There are further reasons for cautious optimism, we’re starting to see stronger pipelines and project mobilisation in both commercial and civil activity. This renewed momentum in infrastructure and development is beginning to ripple across the wider property market, with housing transactions gradually returning to more typical levels of around 100,000 per month, suggesting a stabilisation in market confidence. But, given ongoing labour constraints, meeting the government’s 1.5m new homes target will require more than additional funding and buyer incentives, so it’s key that the Construction Skills Package is prioritised to bridge labour gaps and get Britain building.”
Thomas Pugh, Chief Economist at RSM UK and Ireland, added: “Despite the warmest summer on record and below average rainfall, the construction industry still appears to lagging well behind the services sector. Indeed, the continued weakness in the housing and civil engineering balances points to the difficulty that the government has had in turning its rhetoric on housebuilding and infrastructure investment into reality on the ground.
“What’s more, the employment balance slipped back again suggesting that a lack of demand and high costs are dampening firms willingness to hire. And the drop in the future activity index to the lowest level since 2022, suggests firms are unenthusiastic about the outlook.”
“The two bits of good news was that input prices eased a little and a slight recovery in commercial activity, which may reflect an increasing willingness amongst firms to start to invest.”