Construction industry slows

This is according to the latest RICS Construction Market Survey which showed that 5% more surveyors reported total construction workloads fell rather than rose in Q4 2010.

Although this is a slight improvement from Q3 (-10%), work levels varied strongly across the UK. The South East/ London region was the only area to report positive activity, while all other regions saw sharp falls in workloads. Northern Ireland and Scotland recorded the largest falls in activity with net balances of –52 and –23 respectively.

As a result of government spending cuts, public housing and public non-housing sectors were the hardest hit - both recording net balances of -20%. Surveyors report that the spare capacity created by falling public sector workloads is yet to be replaced by the private sector. Meanwhile, only the private commercial sector managed to remain in positive territory (+9) although this appears at the present stage to be more indicative of the sector bottoming out, rather than a sustained recovery.

Material costs rose dramatically, with 56% more surveyors reporting a rise in costs, up from 28% during the previous three months. Tradespeople and professional costs fell, reflecting increased competition for jobs, which is driving down the cost of labour. However, this was insufficient to offset the rise in commodity prices and as a result, the total input costs net balance climbed from +9 to +28.

Surveyors revealed the market became increasingly competitive in the last quarter of 2010, with firms seeking to secure work from a smaller and diminishing pool. As a result, surveyors predict that jobs will continue to be lost, with 14% more respondents expecting employment levels to fall rather than rise over the next 12 months. Surveyors were similarly downbeat with predictions for workloads and profit margins (-7 and -37 respectively).

Commenting, RICS chief economist, Simon Rubinsohn said: “The rebound in the construction sector seems to have run out of steam. Although bad weather at the end of the year will clearly have had some impact on responses to the survey, the bigger picture here is of an industry under significant pressure as public spending cuts begin to bite, while there is little sign of a private sector recovery across large parts of the country.

“Ominously for the housing market and medium term house prices, residential development is not at this point being cranked up to meet projected demand. This means that the response to the introduction of New Homes Bonus is going to be absolutely critical. ”