Growth, growth but more houses needed

Optimism is something that takes time to really set in. It was predicted that construction output in 2014 would see a 1% increase with a 2.1% increase in 2015 for Europe’s 19 largest economies. This would be a welcome bit of news considering how the industry had contracted by 21% over the past few years with the global economic turmoil.

2015 however is going to bring some challenges – the continuing uncertainty over Greece and the wider European risk of sliding into deflation. This certainly does knock the optimism levels. Deflation in Europe will lead to one thing – further margin squeeze in the industry. Now this is an industry still dealing with legacy contracts (with low margins), thriftier budget holders (therefore low margins) and dealing with falling inflation will lead certain customers to put of spending decisions. All signs point to tough times!

So what to do? Well like most businesses if your market is failing you then either you adapt in your local market or seek out further markets to complement existing ones. What I think we will see over the coming months is larger construction businesses venturing into new territories and given the growth in the UK it is likely to be us that see a few new signs on sites. Good news yes? New jobs for people but is there capacity in the market place?

One area where construction may well benefit from overseas is to address the chronic lack of properties coming to market, which ultimately is pushing up the average house price. Recent numbers show that the average asking price in the UK is £279,004 (Jan-15) with the regions picking up the pace. The figure is a little lower for a new buyer at £167,107 (Jan-15), but even with housing initiatives this still leaves a chunky deposit for a new buyer.

The good news for anyone buying a home is the record low mortgage rates, partly helped by the continued low base rate of 0.5 per cent. How long will this last though? It is widely known that the base rate is expected to increase over the coming year and it will be interesting to see how banks adjust mortgage rates to reflect this. Certainly a good time to get locked into to a low rate fixed deal.

Overall the market is growing and it will see new entrants looking to join the band wagon and this needs pushing into housing to help control growing house prices

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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