The cost-of-living crisis in the UK has cast a long shadow over various sectors, notably the construction industry. We caught up with Principal Consultant, Danny Hung who discussed the repercussions the cost of living surge in 2023 had on the housing market and some of the improvements we can expect to see in 2024.
The Impact of the Cost of Living on the Housing Market in 2023:
Decrease in Home Purchases:
With reduced disposable income, a significant portion of the population found itself unable to afford to buy a home. This translated into a decline in the number of individuals entering the property market, impacting property sales and demand.
Escalation of Interest Rates:
To mitigate the impact of the cost-of-living crisis, we saw a significant increase in interest rates, aiming to stabilise the economy. The bank rate rose five times in 2023, in three increments of 0.25%, taking it from 3.5% in January to 5.25% in December. This, however, had a significant impact on mortgage rates, discouraging potential home buyers.
Escalating Costs for Construction companies:
Construction companies faced challenges as c Combined with increased interest rates, this created financial challenges for construction businesses.
Government Support Reduction:
A major government aid scheme, the Help to buy scheme, that once supported the housing market ended in March 2023, after 10 years, reducing the safety net and financial support for potential homebuyers and developers.
Impact on the Construction Industry:
Stalled Projects and Dormant Sites:
The economic downturn led to a decline in new construction projects, with many existing ones left dormant due to financial uncertainties.
Reduced Work Opportunities:
The reduction in projects within the construction sector resulted in fewer job opportunities for contractors and a rise in unemployment within the industry.
Increased Redundancies and Business Closures:
As projects dwindled, many construction companies faced the harsh reality of downsizing, leading to increased redundancies and, in extreme cases, businesses going into administration.
Shift towards Social Housing:
It was calculated that the number of first-time buyers in 2023 fell by a fifth compared to 2022. This made the number of first-time buyers who bought a home with a mortgage in 2023 the lowest in a decade. Faced with the reality of a lack of demand for private projects, many construction companies pivoted towards government-funded social housing projects as a more stable source of income (though, higher construction costs still constrained these projects.)
What we are seeing in 2024 and predictions for the year:
Improvement of housing affordability:
While interest rates are expected to remain at or near current standings throughout 2024, the reduction in house prices and rising average earnings will contribute towards the improvement of housing affordability. This is expected to support a recovery in project starts during 2024 and 2025 as developers respond to improved consumer confidence and a strengthening in the number of house buyers.
Material Costs Stabilisation and Reduction:
The construction industry is starting to witness relief as the costs of materials stabilise and, in some cases, decrease. This stability is expected to help encourage companies to increase development activity. Enhanced market conditions are also expected to broaden the possibilities for a greater number of mixed-tenure schemes.
Potential Funding Boost Post-General Election:
With a general election on the horizon, promises of increased funding to the construction industry from certain political parties offer hope for recovery and growth in 2024
In conclusion, while 2023 posed significant challenges for the UK construction industry and housing market, the prospects for 2024 and beyond appear far more promising. Whilst there is still a long way to go, the industry is beginning to see increasing confidence for both consumers and developers following the stabilisation of significant economic hurdles in 2023. This in turn should lead to an increase in projects and work available within the construction industry. Vision Personnel have entered 2024 with multiple opportunities available within the construction industry. If you are looking for work, get in touch.