The state of UK construction August 2012

CONSTRUCTION SLUMP - PERFECT STORM

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Total construction industry output still 9% down on what it was 10 years ago.

The private sector will need to grow by a third of a billion a quarter to maintain output levels if public sector cuts.

Total output

• Public sector output has increased by 12% in the last 10 years, whilst private sector output has shrunk by 15%.
• This increase in public sector spending, in combination with the beginnings of a recovery in the private sector during 2010 / 2011, meant that by the second half of 2011, total output for UK construction peaked at nearly 5% higher than it had been in 2002.
• However, in the first half of 2012, both public and private sector output fell, resulting in total output dropping to a level 9% lower than it was in 2002.
• If the public sector continues to shrink at this rate, the private sector will have to grow by more than a third of a billion pounds a quarter just to keep total output at its current level (see the future scenario illustrated on the adjacent graph).
• If the public sector continues to shrink, and the private sector does not grow to fill the void, the industry will enter a double dip recession.

Volume of construction output. Non- seasonally adjusted output/quarter in Great Britain (£millions at 2005 prices)

Public sector new build

• The post credit crunch rise in new public sector projects was dramatic, as has been its recent decline. Between the beginning of 2008 and the peak in 2010, public sector housing grew by 60% and public sector non-housing by an extraordinary 78%.
• Since that peak, public sector housing has shrunk back by 25% and public sector non-housing by 31%.

Public sector housing and non-housing. Output/quarter (£millions 2005 prices) in Great Britain

Private sector new build

• Private sector housing and non-housing collapsed with the loss of confidence and withdrawal of finance following the credit crunch. At their lowest, private sector housing was 50% below its peak, and private sector non-housing was 38% below its peak. They have subsequently been experiencing a patchy and slow recovery, but are still well below their peak.

Private sector housing and non-housing. Output/quarter (£millions 2005 prices) in Great Britain

Infrastructure repairs and maintenance

• Repairs and maintenance have progressively declined since 2004, falling to 19% below their 2002 level. In contrast, new infrastructure projects peaked at 27% higher than their 2002 level. Since the middle of 2011 however, infrastructure projects have fallen back.

Infrastructure, repairs and maintenance. Output/quarter (£millions 2005 prices) in Great Britain

Workforce

• Despite dramatic and rapid changes in the make up and size of the industry, employment has remained relatively stable, 15% lower than its peak, but roughly level with its position in 2002.

Workforce jobs. Seasonally adjusted (thousands) in the UK

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Planning permission =

• Construction is generally preceded by a successful planning application, and so the number of applications granted can be a useful indicator of the outlook for construction.
• Whilst there are some slight signs of a recovery from the lowest period in 2009, permissions remain 30% lower than they were in the same period in 2004, suggesting that the outlook is poor.

Planning applications granted. Thousands in England

Architect's commissions

• Planning applications are generally preceded by architectural design. Public sector architectural commissions held up relatively well until the second half of 2010. However, private sector commissions collapsed by 74% between their peak in 2007 and the beginning of 2009 and were showing little sign of recovery by the end of 2010.
• Regrettably, this data set has been discontinued by the Office for National Statistics. However a number of deductions can be made from the RIBA future trends survey. This survey indicates that whilst there was some optimism at the beginning of 2012, by July of this year, architects were predicting that their workload would remain constant or decrease across all sectors in the next 3 months. This suggests that the outlook for construction is poor.

Architects’ workload. Estimated value of new commissions (£millions at 2005 prices) in the UK

Sources of information

• ONS Output in the Construction Industry, June and Q2 2012
• ONS Construction Statistics No. 13, 2012 Edition
• ONS JOBS02: Workforce jobs by industry
• CLG Table P120: District planning authorities - Planning applications received and decided
• RIBA Future Trends Survey