The revival of the UK housing market – one of the construction industry’s largest purchasers of wood and wood products – has continued, with most indicators confirming solid growth in recent months.

The Royal Institution of Chartered Surveyors’ (RICS) housing market survey shows rising new buyer enquiries, and mortgage approvals in March were 2,000 higher than the previous month at 116,000. Lending for housing in March was well above both the increase in February and the previous six-month average, according to the Bank of England.

House prices, a further indicator of demand, rose by 4.4% in the first four months of 2006, says the Halifax bank, although Nationwide reports no price changes during April. The number of home sales in England and Wales soared by 37% in the first quarter over the same period a year ago, according to the Land Registry.

Consumer spending on housing and related expenses totalled more than £327bn in 2005, says market analyst Mintel. This was an increase of 4.2% on 2004 figures, and 65% more in real terms than in 1995 despite the sharp slowdown in demand last year.

The housing market is currently supported by a strengthening economy and low interest rates. But the Bank of England has intimated that a rise in borrowing costs will be needed to contain price pressures. Further, a softening labour market and higher utility and council tax bills are likely to curb growth in the market as the year progresses.

The recent slowdown in high street spending is reflected in weaker demand for retail property, a new RICS survey indicates. Demand fell for the fifth consecutive quarter in the period January to March, and was accompanied by the largest increase in available retail space recorded since the survey began in 1999.

In contrast, the office rental market remains healthy, with demand rising at the fastest rate since the fourth quarter of 2004.

On the supply side, official estimates show the volume of new orders placed with contractors for construction of commercial property rose by 18% in the first quarter of 2006 compared to the previous quarter, and by 27% compared to the same period in 2005. Orders for new industrial buildings fell 16% in the first quarter but were 26% higher than a year earlier.

Private housing orders

Orders for new private housing placed in the first quarter were 2% lower than in the previous quarter and down 3% year-on-year. In total, new construction orders fell by 1% between the two latest quarters, but rose 6% over the first quarter of last year.

Optimism about future construction activ-ity continued to increase strongly in April, with purchasing managers in the UK industry reporting another month of growth. This was supported by rising employment to deal with increased workloads, says the Chartered Institute of Purchasing & Supply (CIPS).

Higher levels of construction materials purchasing contributed to delays in output, as average lead times lengthened for the 10th successive month. In addition, input price inflation remained strong during April, says CIPS, although the rate of increase slowed to a five-month low.

Separately, the Construction Products Association says a third of building product suppliers saw unit manufacturing costs rise by “more than 5%” in the first quarter, driven by increases in fuel and energy costs. It adds that manufacturers expect a modest overall increase in sales over the next 12 months, following a small rise in annual sales volumes in the first quarter.

But profits among construction firms continued their downward slide in the first quarter of 2006. The index produced by credit insurer Euler Hermes dropped to 26.8 (where 50.0 indicates no change) the sharpest fall in the seven-year history of the series. Further, cash flow in the industry fell by 7.2% in the year to the first quarter, although this is expected to rise to 5.8% over the coming 12 months.

Looking further ahead, total construction output in Great Britain is forecast to expand by 13% to 2008. Experian Business Strategies says growth will trail the national rate in Yorkshire and the Humber, the north-west, the East Midlands, Scotland and the north-east. Increases in the south-west are forecast to be in line with the national average, and output growth is expected to be better than the average in Wales and in all the remaining regions.