Featured Sector: Private Housing

Private housing activity has been a key driver behind the recovery in construction output over the last two years. The rise in construction output in 2013 followed a sharp rebound in project starts tracked by Glenigan since late 2011 as house builders opened up sites in anticipation of a sustained revival in market activity. This supported an 8.3% rise in private new housing output in 2013, while the ONS figures show that private housing output continued to expand rapidly last year, growing by 21.6%.

Over the last year new housing activity has benefited from both improving consumer confidence and support from Government initiatives such as Help to Buy. These factors should support a further strengthening in wider housing market activity and new house sales during 2015.

Private residential work continues to expand at a strong rate. Glenigan data shows that the value of project starts during 2014 was 12.4% up on the previous year. The pace of year on year growth, however, slowed the second half of the year, with project starts during the final quarter of 2014 6.3% up on year earlier.

The latest purchasing managers’ index from Markit/CIPS for May 2015 reported a sharp and accelerated increase in  residential building, rebounding from a 22-month low in April. Markit had credited the previous cooling to less favourable conditions, tighter mortgage lending and “renewed uncertainties about the demand outlook” as well as pre-election uncertainty.

Recent Performance

The housing market has benefited from a brighter outlook for the UK economy and improved consumer confidence over the last year. In addition Government initiatives have helped crystallise this improvement in market sentiment as increased transactions. In particular the Help to Buy scheme seems to have boosted housing market activity and has been credited by major house builders for increasing their confidence to invest in new sites.

While Help to Buy has supported the recovery in new housing activity, there have been concerns that the extension of the scheme to existing properties would push up house prices that were already at relatively high levels compared to incomes. Certainly there has been a broad strengthening in house price inflation following the extension of Help to Buy to existing properties, although this has also been driven by a general improvement in confidence and mortgage availability. 

Key to the success of the scheme is whether the greater pool of potential house purchasers encourages more owners to put their property on the market, tempering the rise in house price inflation.