House building falls 21% as rate rises bite
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House building is set to slump by a fifth this year according to a report that adds to evidence of the squeeze being caused by rising interest rates.
Figures from PwC suggest residential new-build activity will fall by 21.1 per cent in 2023 as higher mortgage costs together with the broader cost of living squeeze weaken demand.
That is on a par with the slump in the pandemic year of 2020 when output shrank by 20.8 per cent.
The figures come after Berkeley, one of Britain’s biggest housebuilding firms, said on Friday that it had stopped buying land for new homes due to the ‘considerable uncertainty’ gripping the economy as well as complex planning rules.
PwC’s report suggests that while housebuilding bounced back strongly in 2021 and 2022 it is set for a big dive this year. Soaring interest rates – now at 5.25 per cent and expected to climb again later this month – are blamed for the trend.
Paul Sloman, at PwC, said: ‘With the cost of borrowing for mortgages now at its highest level since 2008, it follows that fewer sales enquiries and slower decision making among prospective home owners would be the result.
‘With a sharp fall in demand, house builders will act to preserve cash and ensure they build only what they could sell. However, we do see green shoots and predict an overall return to strong growth in 2024 and 2025.’
The report pointed to a fall of 7.8 per cent in new-build output this year when including commercial and industrial construction.
Commercial construction will drop 0.4 per cent amid uncertainty about returning to the office while industrial building should rise by just 0.9 per cent, as a frenzy of warehouse building to serve online shopping demand cools.
Repair and maintenance work has proved more robust for builders as households spruce up homes instead of moving.
Separate figures from accountants BDO add to recent evidence that rate rises are taking their toll on the wider business environment and threaten to drag Britain into a downturn.
They showed an index measuring employment falling for a second month in a row as well as a decline in business output.
BDO partner Kaley Crossthwaite said: ‘Businesses are reacting to the higher interest rate environment with conservative decisions about hiring.
‘We can expect a slump in output, optimism and employment in the final months of 2023 as a result of rising unemployment and higher rates for businesses.’
This week GDP figures are expected to show a 0.2 per cent fall in July due to wet weather and strikes. Last week, Bank of England governor Andrew Bailey said it was reaching the ‘top of the cycle’ on interest rates.