Weaker demand will see housebuilding activity tumble by over a fifth this year, but experts see a quick rebound as rates come down again.
Consultancy PwC said the current housing slump means the construction sector is facing an overall decline in output of around 8 per cent. Commercial and industrial activity is largely flat, but a strong pipeline of infrastructure projects supports long-term growth, the firm said in its latest Construction and Housebuilding Outlook.
There has also been a “marked increase” in the number of larger, higher-profile companies in the sector calling in administrators when compared with other industries, which PwC blamed on the impact of higher input costs on fixed-price contracts.
“With a sharp fall in demand, housebuilders will logically act to preserve cash and ensure they are building only what they could sell," said Paul Sloman, engineering and construction sector lead at PwC.
"However, despite these headwinds, we do see green shoots and predict an overall return to strong growth in 2024 and 2025."
A steady recovery in housing demand will support construction sector growth of 2.1 per cent in 2024 and 3.7 per cent in 2025, although this will only bring the annual growth rate over a six-year period to 0.5 per cent by the end of 2025, the firm said.
Charlie Campbell, an analyst at Liberum, argued that a re-rating of housebuilders is due as the peak of the interest rate cycle approaches. "Much of the discussion around the housing market is, rightly, around affordability, but we think that sales rates are also depressed by buyers’ uncertainty," he said.
He forecast a 20 per cent sector-wide increase in total shareholder returns over the next year as “investors look… through the short-term challenges of increased mortgage rates and the challenges of the planning system”.
