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The big numbers: GDP, skills and housing starts all struggle

This week’s biggest numbers reveal that housing starts and the sector’s share of GDP growth are still falling short as the available talent pool shrinks.

It’s getting better – but it’s not quite there yet.

That’s the clear message from the Department for Communities and Local Government’s latest batch of housing statistics, which show new housing starts in England hit a nine-year high in 2016.

England saw 153,380 housing starts in the year, up 5 per cent on 2015 and marking the fourth year running of annual growth. But that’s still 16 per cent lower than the pre-recession peak, when England saw 183,600 housing starts.

The government’s housing white paper shows it places great importance on boosting the figures, but analysts suggest it’s unlikely growth will hit double digits in 2017.

And what about the skills to build the homes? ONS data shows there are fewer young people not in education, employment or training – meaning the pool of talent there to be drawn into the industry is shrinking.

And construction’s appeal won’t be helped by the fact it continues to drag down total UK GDP, as the latest 2015-16 figures reveal.

Housing starts up but still below target

In 2007, the construction of more than 183,000 homes started on site across England.

Fast-forward to 2009, and that number had more than halved, with only 85,610 starts that year.

It’s been relatively steady improvement since then, however, with housing starts growing year-on-year between 2012 and 2016, culminating in 5 per cent growth in 2016.

However, these numbers are still well short of the government’s mooted 200,000 homes-a-year target, while there are significant regional variations in terms of what is being built and where.

Housing peak trough recovery_DCLG

Housing peak trough recovery_DCLG

Source: DCLG

According to research from estate agents Assetz Property, slumping buy-to-let demand in the South-east is likely to hit some developments, while rising stamp duty has long been mooted as a dampener on demand in the capital.

The firm’s chairman, Stuart Law, says there has been a 60 per cent year-on-year drop in buy-to-let in the South-east, and a 40 per cent reduction in buy-to-let mortgages across the UK, but regional markets have been far more buoyant.

“[Regionally] the [buy-to-let] market has rebounded and we estimate it is up an astonishing 400 per cent since the month after the referendum and 50 per cent up from before then,” he says.

But the fact that total starts are still 16.5 per cent below their pre-recession peak has been cited as further evidence of the need for the government to support housebuilders to deliver homes in both the private and public sectors.

What’s also clear is that housebuilders themselves need to be conscious of quality rather than rushing to meet demand – Bovis’ announcement that it would reduce completions by around 10 to 15 per cent in 2017 in the wake of quality issues and the subsequent impact on its share price should serve as a warning.

Private maintains dominance but social recovers well

Today’s housing market is still almost entirely driven by the private sector, which made up nearly 85 per cent of all starts in 2016.

But the statistics reveal that private housing starts are still in recovery mode, with the private sector making up proportionally less of England’s total housing starts in 2016 (87.1 per cent of the total) than it did in 2007 (84.5 per cent of the total).

Private housing starts are also 19 per cent lower as of 2016 than they were at their pre-recession peak in 2007.

The DCLG’s statistics point to major regional variations; in Manchester, housing starts were up 323 per cent year on year in 2016, no doubt boosted by major schemes starting on site such as developer Renaker’s mammoth Owen Street project, which will provide more than 1,500 privately rented homes.

Mr Law says that Assetz research had shown particular peaks in regional city centres, with demand in Birmingham, Bradford, Leeds and Manchester “going off the scale”.

“The reason for this is that people paused for breath [after the EU vote], assessed the market and realised that, despite the stamp duty hikes, far better returns could still be made in [buy-to-let], provided they focused on higher yields,” he says.

“Higher rents help obtain larger mortgages and also compensate for slowing house price growth.”

By comparison to private starts, social housing has fluctuated since the recession. Last year, total social housing starts – both housing association and local authority starts – were 0.8 per cent higher than in 2007, yet still 17 per cent shy of the most recent peak recorded in 2014.

GDP contribution continues to fall short

The Office for National Statistics has released its second estimate of GDP for the final quarter of 2016 – and for the construction industry, the picture is closer to one of stagnation than of growth.

The ONS estimates that while overall UK GDP grew by 0.7 per cent in the fourth quarter of last year, this was almost entirely led by the service sector, with construction contributing almost zero to this level of growth.

This represented a slight improvement over Q3, when construction acted as a negative contributor to GDP after posting a decline of 0.1 per cent.

Construction’s role in overall UK growth has been minimal over the past two years, with the highest contribution coming in Q1 2015, when it recorded a 0.2 percentage point contribution to growth, while services output contributed just 0.1 percentage points.

Since then, it has hovered around the 0.1 percentage point contribution mark, with GDP growing by 0.5 per cent per quarter on average over that two-year period.

Nevertheless, ONS data suggests overall activity grew by 1.5 per cent in 2016 compared with the previous year – meaning that total construction output has now outstripped its previous pre-recession high in 2007.

But Construction Products Association senior economist Rebecca Larkin says construction continues to fall short in its contributions to the UK’s rate of growth, with services still driving overall GDP.

She adds that construction makes up 7.9 per cent of total GDP, with the current slow rate of growth likely to keep construction’s share at a similar level in the short term.

“Construction growth would need to be revised plus or minus 0.9 percentage points to have an impact on GDP growth,” she says.

With the CPA forecasting output increases of 0.8 per cent this year and 0.7 per cent next year, construction will need a major stimulus to help boost the overall economy in the next two years.

Available NEET talent pool shrinks again

The ONS has revealed that the proportion of all 16-24-year -olds not in education, employment or training (NEET) has fallen to a new low.

As of Q4 2016, only 11.5 per cent of 16-24-year-olds were classed as NEET – down from 11.9 per cent in the previous quarter.

This was significantly lower than in Q4 2011, when 16.4 per cent of 16-24-year-olds were not in education, employment or training.

NEETs comparison

NEETs comparison

The data shows a positive downwards trend, with more people entering apprenticeships, universities, colleges and employment – but this also raises concerns for construction.

It is clearly a positive for the wider economy that more young people are taking up employment and training – but it also suggests the talent pool of available young people is shrinking, leaving fewer young people to draw into the construction industry.

A senior source at a top-100 regional contractor says the CITB needs to redouble its efforts to attract more people to the industry as the number of available young people declines.

“All people think about when joining the industry are builders,” the contractor says.

“We need a joined-up campaign – Build UK, CITB and the apprenticeship levy could make serious in-roads into attracting more people into the industry if they put their heads together.”

Other contractors have already called for training to be more site-focused to keep young people in the industry.

With firms still in dire need of attracting new blood, construction will have to increase efforts to attract the remaining NEET young people into the industry.

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