The imbalance between supply and demand in the UK housing market is continuing, although the number of new homes started is on the increase. Orders for new construction as a whole rose by 2% last year, but fell by 1.5% year-on-year in the final quarter.

The latest evidence of the squeeze on housing supply is the news of the fastest rise in prices since last summer. The Royal Institution of Chartered Surveyors says prices have been rising most rapidly in the north, but London is also recovering after a pause at the end of 2001. House prices are expected to increase over the coming months at the strongest rate in a year, as the ratio of completed sales to stocks has risen to the highest level in 13 years.

The number of loan approvals for house purchase has continued to recover from the weakness in September, although average mortgage rates rose in January for the first time in nearly a year. The Council of Mortgage Lenders reports that gross mortgage lending rose to £13bn in January, up from £9.5bn in January 2001.

Consumer appetite for borrowing to fund property purchases will eventually be reined in by higher interest rates, unemployment or taxes. The biggest risks at present are a slowdown in earnings growth, and the threat of unemployment. Earnings in the economy as a whole grew by 3.3% in the year to December 2001, down 0.8 percentage points from the November rate. In the private sector the rate fell 0.9 percentage points to 2.9%. But despite recent announcements of job losses, the numbers claiming unemployment benefit fell by 10,600 during January and were 55,000 fewer than a year earlier.

Home building activity is robust, according to the Department for Transport, Local Government and the Regions. New starts in the private sector rose by a seasonally adjusted 5% between the last two quarters of 2001, to 42,500, and by 16% compared with the fourth quarter of 2000. Completions rose 4% in the fourth quarter of 2001, to 35,700, but by only 1% compared with 2000. Orders placed with contractors for new private housing rose by 6% in the final quarter compared with 2000.

Orders for new industrial buildings fell by 16% in the year to the fourth quarter of 2001, while new commercial projects rose by 7%, but infrastructure contracts dropped by 30%.

Survey evidence published by the Chartered Institute of Purchasing and Supply confirms that activity is continuing to expand, with the strongest growth again in the housing sector, where activity was the strongest since August 2001.

Rising activity during January reflected a sharp increase in the volume of new business placed with construction firms during January, when order books expanded for the 39th successive month and at the fastest rate since August. Optimism in the industry is at its highest since July, but materials shortages are cited as the main reason for an increase in the price of some materials.

Raw material costs for manufacturers of construction products rose by 0.7% in the year to January. At the factory gate the price of builders’ carpentry and joinery fell 0.8% over the year.

According to other government figures the value of builders’ carpentry imports in the first nine months of 2001 rose by 5.7% compared with the same time in 2000, with imports from EU suppliers up by 11.4%. The total value of British exports grew by 7.7% on the year, with shipments to EU customers up by 7.5%, and those to non-EU buyers 9.1% higher. Figures for overseas business in prefabricated buildings during the comparable period reveal a reduction of 6.5% in the value of UK imports and a fall of 12.6% in shipments to foreign buyers.
Related Files
Construction Activity and Orders
UK Production
Timber Frame Housing