The number of homes being built in the UK has fallen by the sharpest rate since May 2020, dragging down overall activity in the construction sector.
Growth across the industry eased according to the latest construction purchasing managers' index from CIPS, with the March reading of 50.7 down from 54.6 in February when the sector rebounded to a nine-month high.
A resurgence in civil engineering projects and transport-related construction activity kept total production in positive territory, but lower volumes of residential building work were recorded for the fourth month in a row. There was a "sharp and accelerated" drop in housing activity, with the reading for this sub-sector falling to 44.2 as rising interest rates have hampered demand for new homes.
The figures came less than a week after Nationwide Building Society reported that UK house prices are falling at the fastest annual rate since the aftermath of the 2008 financial crisis. March's monthly decline of 0.8 per cent left prices 4.6% below their August peak, while the annual decline of 3.1% was the biggest since July 2009.
READ MORE: Robust profits give builders room to cope with downturn
"Strong inflationary pressures remained an obstacle to wider expansion at building companies...along with concerns over consumer affordability rates," said John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS).
"With residential building still struggling and falling at the fastest rate since May 2020, it was the bigger projects like HS2 managed by the civil engineering sector that added fuel to the engine of construction growth this month."
The Bank of England raised interest rates to 4.25% in March, marking the 11th incerase in a row. Samuel Tombs, chief UK economist at Pantheon Macro, said the downturn in housebuilding looks set to gather further momentum in the coming months.
"Builders had to complete any homes that had been purchased with the support of the Help to Buy scheme by March 31, so the downturn might gather pace in [the second quarter]," Mr Tombs said. "Housebuilding also likely will drop off in July, from when all new homes that are started must comply with stricter 'Part L' regulations."
READ MORE: Annual rate of house price growth stalls in Scotland
The government's Help to Buy scheme closed at the end of last month after a decade of providing support to buyers struggling to save up a deposit towards a new home. The Home Builders Federation has called for a new “targeted” scheme for first-time buyers to be introduced in its place.
Elsewhere in the sector, civil engineering was the fastest-growing area of construction output in March with an index reading of 52.0. Survey respondents cited a boost from work on HS2 infrastructure projects and robust demand for other transport-related construction activity.
There was also an increase in commercial building work with an index reading of 51.1, although the rate of expansion eased from February’s nine-month high.
Despite worries about the near-term outlook for housing activity, expectations for total construction output during the year ahead were relatively upbeat. Nearly half of the firms surveyed predicted an increase in business activity during the year ahead, with only one in 10 anticipating a reduction - the highest level of optimism since February 2020.
READ MORE: ScotGov affordable home target concerns as house approvals slump
Martin Beck, chief economic advisor to the EY ITEM Club, said the construction sector continues to face "sizeable headwinds". However, there are some reasons to remain hopeful.
"The introduction of 100% expensing for some types of business investment could support commercial building projects in certain sectors," he said. "What is a comparatively energy-intensive sector will [also] benefit disproportionately from the recent significant fall in wholesale energy prices."
He added that as a "relatively cyclical industry", construction firms could also be among the first to benefit when the economy begins to recover.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here