News & Views

Housing boom or gloom? Construction industry must keep up

Is a house price bubble building up?

Is a house price bubble building up?

The UK housing market is booming! Across Britain, house prices rose at their fastest rate in over nine years and in June, it was announced that house prices were up 11.8% over the previous twelve months, now surpassing the peak reached at the height of the 2007 bubble.

As house builders seek to take advantage of rising sales and prices, activity in the sector has been surging.

June saw Britain’s construction industry take on extra staff as house-building activity continued to grow and hiring levels increased at their fastest rate since records began in 1997.

At the start of the month, the chief executive of the UK’s largest listed brick maker, Michelmersch, warned his firm was struggling to keep up with demand for the building material. Martin Warner was quoted as saying, “Every brick we can make is being sold straight away,” and warned stocks across the UK were at the lowest level in living memory. Current stocks are only enough to cover two months’ of demand from the building industry.

The shortage has given rise to a yearly 8% increase in the price of bricks, increasing the costs for house builders and threatening to slow the vital house-building needed to ease the nation’s property price bubble surge.

Brian Berry, the chief executive of the Federation of Master Builders, cautioned that the small and medium-sized construction firms that he represents were being hit harder than their larger counterparts. His members were said to be having to wait up to eight months for bricks as large firms were given priority access to supplies.

UK must skill up with apprenticeships or ‘lose the global race’

The growth in UK house-building also comes under threat from a reduction in the number of apprenticeships. Markit’s chief economist, Chris Williamson, said the industry is already suffering “record skill shortages” putting upward pressure on subcontractors’ pay.

Several European countries are considerably ahead of the UK; while England has 11 apprentices for every 1,000 employees, Australia, Germany and Switzerland have 39, 40 and 43 respectively.

Bricklayers are the tradesmen for whom the deficit is greatest and who remain top of the ‘most wanted’ list. The shortage is also significant for plasterers as 27% of construction firms reporting they have struggled to find enough as activity has recovered.The Construction Industry Training Board estimates the building industry needs 120,000 apprentices over the next five years to fill an emerging skills gap.

The problem is so significant that a cross-party commission was set up on 1st July, co-chaired by Labour’s Lord Glasman and Conservative MP Robert Halfon to investigate apprenticeships in the construction industry, looking at both the number and quality.

Researchers for the cross-party think-tank Demos have calculated that 300,000 more apprenticeship places would boost Britain’s GDP by £4 billion as well as cutting the unemployment rate.

Lagging behind

Despite the growth in house-building activity the UK housing market is lagging behind other comparable economies. In the past decade, in the UK only one home per 2.5 people has been built, one of the lowest rates of any European country.

Private sector house builders began work on 108,000 homes in the twelve months to March, up 34% on the previous year, but this remains far behind the estimated 240,000 needed to keep up with population growth.

This shortage of new builds combined with the lack of home movers in the market has caused a shift towards renting. The Intermediary Mortgage Lenders Association predicts the failure to increase supply would mean more than half of UK homes would be rented by 2032, compared with about a third now.

The June Markit industry survey said that although firms were still upbeat about the future, they were anticipating interest rate rises over the coming year, dampening sentiment somewhat. As UK house prices skyrocket, leading to worries of a property bubble, Bank of England Governor Mark Carney has come under pressure to use interest rates to intervene and cool the market. The surge in house-building activity has also added to evidence that the recovery is gaining traction, increasing pressure for interest rates to rise before the end of the year although the projected increase in new builds could itself lead to cooling in the housing market.

The Sherrards property team is based in London and St Albans and is on hand to answer any of your questions or help with your conveyancing needs.

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