Housebuilding is at its lowest level since the financial crisis, with the exception of the pandemic, according to the latest PMI data from S&P and CIPS. Meanwhile, the latest Glenigan Index shows that a fall in private housing dragged the market down.
The headline construction PMI for November dropped to 39.4, down from 44.1 the month before, with housebuilding falling significantly to 35.
Kelly Boorman, national head of construction at leading audit, tax and consulting firm RSM UK, says: “Housebuilding sank to levels only seen in the pandemic and financial crisis, demonstrating the frustration felt by housebuilders and lack of demand for new homes.”
“Uncertainty remains for housebuilders around the impact of the budget, with the new mansion tax coming in 2028, and additional 2% property income tax also on the horizon. These changes will impact property portfolios for landlords, and rental prices for tenants, making it potentially harder for young people to get a foot on the first rung on the property ladder, with no further incentives offered for help to buy.”
Downsizing could boost housebuilding at lower end of the market
“The new mansion tax will hit properties valued from £2m upwards, which will stimulate the market at the higher end, as people are encouraged to downsize to below the tax threshold before the change comes in. This could also boost housebuilding volumes at the lower end of the market, although we still expect house prices to be impacted, and these are forecast to be flat until 2028.”
Thomas Pugh, chief economist at RSM UK and Ireland, says: “Admittedly, output in the construction sector probably wasn’t as bad as the drop in the PMI indicated, and now that we know there won’t be major tax rises next year, confidence should return.
“But it doesn’t bode well for growth in Q4, where there is a real risk of flatlining or even a contraction. Looking ahead, the construction sector should start to improve, as confidence improves after the budget, and interest rates come down a little further.”
The figures are supported by the latest figures from December’s Glenigan Index, which show that residential construction starts declined by 6% compared to the preceding three months and falling 18% on 2024 figures. A fall in private housing construction, dropping by 16% during the three months and 26% against the previous year, was largely to blame.
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