Weak housebuilding caused the UK's construction output to shrink for the fifth month in a row in May - and it could get worse

 
Emma Haslett
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Construction dropped in May (Source: Getty)

As if they needed it, here's more bad news for housebuilders: the UK's construction output fell 2.1 per cent between April and May - driven largely by a drop in the number of new homes being built.

Figures published by the Office for National Statistics (ONS) this morning showed output fell 1.9 per cent year-on-year in May, and 2.1 per cent quarter-on-quarter.

The ONS said the main contribution to the decrease came from private new housing, which fell 3.5 per cent between April and May, while total new housing fell 3.2 per cent.

Year-on-year, the picture was slightly less discouraging, with private new housing increasing 3.7 per cent - although that was offset by an 18.9 per cent drop in public new housing.

"There have been 38 consecutive periods of year-on-year growth in private new housing, while public new housing has seen a run of 13 periods of contraction," said the ONS.

The news coincided with the publication of a House of Lords report which suggested the government's housebuilding target is woefully inadequate - suggesting the UK must build 300,000 homes a year to meet demand.

Read more: Brexit worries didn't stop house prices rising in June - except in London

But the report suggested the private sector has "neither the ability nor motivation" to satisfy demand.

“The only way we can build 300,000 homes per year is if over 300,000 homes are given planning permission each year. Local councils that control planning policy must listen to younger workers struggling with high rents rather than the NIMBY protesters who seek to block the homes we need,” Duncan Stott, director of PricedOut, told City A.M.

Housebuilders' share prices have been battered after the EU referendum, with FTSE 100-listed builders losing as much as 30 per cent of their value as investors worried about the effect of the vote on house prices.

"It is evident that the construction sector was hit appreciably by increased caution among clients (especially for major projects) as the run-up to the referendum on EU membership magnified UK and global economic uncertainties," said Howard Archer, chief European and UK economist at IHS Markit.

"Indeed, it looks highly likely that construction output was a drag on GDP growth in the second quarter as it could well have fallen significantly quarter-on-quarter – although it should be borne in mind that construction output only accounts for 5.9 per cent of GDP."

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