Construction Boosts Economic Growth

The latest UK GDP output for the second quarter of 2013 has been revised upwards, indicating that increased construction output has helped to boost the UK economy.

The Office for National Statistics (ONS) reported that the economy grew by 0.7 percent in the three months to September, up 0.1 percent from the July estimate.

All sectors of the economy have improved, but construction has performed particularly well, raising hopes that the economy will emerge from its five-year slump.

So, what does this mean for the industry’s revival?

“Unlike previous recoveries, the construction sector has not been pushed to the sidelines as the service sector surges ahead,” Eimear Daly, head of market analysis at Monex Europe, explains.

“The broad-based growth raises the prospect that this recovery is genuine, and that any traction in the construction sector is sustainable,” Daly says.

And when you look at the numbers, it appears to be the case. Construction output was estimated to have increased by 1.4 percent in Q2 2013 compared to Q1 2013, when construction output was at its lowest level since Q1 2001.

The increase in construction output is being attributed to recent government initiatives, such as Help to Buy, which have been implemented to help boost house building across the country.

Despite this increase in output, many experts warn that the government’s programmes may encourage people to overextend themselves, resulting in a housing bubble.

According to research conducted by the Intermediary Mortgage Lenders Association (IMLA), nearly two-thirds of intermediary lenders and brokers identified a housing price bubble as the most likely factor undermining the government scheme.

According to the Land Registry, lenders anticipate a 2.7 percent increase in the average house price by the end of the year, bringing it to £166,418.

This forecast is based on the market’s performance in the first half of 2013 as well as the early impact of the Help to Buy equity loan scheme.

If this rate of growth continues for the duration of Help to Buy, the IMLA predicts that the average house price will reach £180,265 by the end of 2016: an increase of 11% in four years.

This would bring house prices close to their previous peak of £181,975 in November 2007, raising concerns that the rate of increase could be even faster with the upcoming Help to Buy mortgage guarantee offer set to launch in January 2014.

“There is a clear consensus that the second part of Help to Buy will benefit first-time buyers the most.” However, if house prices continue to rise for the duration of the scheme, “we will be giving with one hand and taking with the other,” said Peter Williams, executive director of the IMLA.

“If people are struggling to raise deposits in the current environment, an additional 11% increase in house prices will push the property ladder even further out of reach for some,” he added.

However,, the communities secretary, has dismissed the concern, claiming that the coalition’s housing stimulus package is working, with “house building and housing supply on the rise.”

“The difficult decisions we made to address the deficit are now delivering a sustainable increase in housing, and it is clear that the Help to Buy: Equity Loan scheme is working well, and Britain is building again.” Pickles stated his case.

The industry has also reacted to the claims, with many house builders praising the government’s schemes for assisting in addressing the issue of mortgage finance, especially since increased access to finance has allowed many house builders to increase output levels to meet increasing market demand.

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And, as Daly explains, the 1.4 percent quarterly increase in construction output should help to alleviate concerns about the formation of a housing bubble because “the uptick in construction explains rising house prices throughout the second quarter.”

“The robust second-quarter construction growth demonstrates that rising house prices are the result of structural improvements in the construction sector, not just a bubble about to burst,” she concludes.

Last Updated on December 28, 2021


Author: Indra Gupta

Indra is an in-house writer with a love of Newcastle United and all things sustainable.

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