Construction Industry Poised for Strong Rebound, but Experts Lower Growth Projections Amid Supply Concerns and Demand Uncertainties

Posted on 29 April 2021

The construction industry is poised to experience robust growth this year, with double-digit expansion anticipated as it continues to rebound strongly from the impact of the Covid pandemic. Experts at the Construction Product Association, renowned for their foresight in the field, have slightly revised their growth projections downward. Their concerns revolve around potential disruptions caused by supply constraints for crucial imported construction materials, as well as uncertainties surrounding the demand for new housing builds and commercial space.

Although construction activity exhibited acceleration in the first quarter of the year, the situation varies across different sectors of the industry. Infrastructure, for instance, weathered the initial lockdown with the least impact and is expected to surge forward by a staggering 29%, reaching its highest recorded level. This remarkable growth will be propelled by significant projects like HS2, in addition to sustained activity in long-term frameworks encompassing water, road, electricity, and broadband sectors.

Let's delve into the key points:

  • Infrastructure output is projected to rise by 29% in 2021, followed by an estimated 6% increase in 2022.

  • Private housing output is expected to witness a substantial growth of 14% in 2021.

  • Commercial output at the end of 2023 is predicted to be 10.5% lower than the levels recorded in 2019.

  • Private housing repair, maintenance, and improvement are forecasted to experience a notable growth rate of 12% in 2021.

  • Public housing repair, maintenance, and improvement are set to rise significantly by 15% in 2021.

To sustain the demand for private housing and private housing repair, maintenance, and improvement throughout 2021, various measures have been implemented. The extension of the stamp duty holiday, Help to Buy, and job support schemes is expected to play a pivotal role. The Chancellor's mortgage guarantee scheme is likely to stimulate demand in the general housing market, thereby contributing to the ongoing strong recovery of the private housing sector. These initiatives, coupled with the anticipation of rising house prices over the course of the year, are projected to accelerate construction starts activity in 2022.

Noble Francis, the director of economics at the Construction Product Association, has provided valuable insights on the industry's outlook. While expressing an overall positive sentiment, he also emphasizes that the recovery in the commercial sector, which holds the distinction of being the third-largest segment within the construction industry, is expected to be somewhat subdued. This is primarily due to limited investment in new projects, particularly in Central London. Uncertainty looms regarding the future demand for commercial space, particularly in offices and retail, which may undergo repurposing as residential or warehousing and logistics facilities if remote working and online shopping persist in the long term.

Noble Francis underscores the significant risks that could hinder the industry's recovery. Extended lead times and sharp cost increases for vital imported products, including paints, varnishes, timber, roofing materials, copper, steel, and polymers, present challenges. These supply constraints have the potential to impede construction activity from expanding as originally anticipated. Additionally, concerns persist about whether the high levels of demand for new housing builds and repair, maintenance, and improvement can be sustained once the government's stimulus and policy measures expire on September 30. This uncertainty is especially relevant with the conclusion of the furloughing and self-employment income schemes, as well as the conclusion of the stamp duty holiday.

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