In a turbulent world, as we face up to yet another external shock \u2014 one that has sent the economy\u2019s dominant services sector into a swoon, according to the latest \u201cflash\u201d purchasing managers\u2019 index \u2014 you would hope that the solid, domestically focused construction industry would provide a bulwark for the economy.<\/p>\n
And yet housebuilding, a key government target, is in decline, and the HS2 debacle is casting a long shadow over Britain\u2019s ability to do infrastructure. Construction, far from providing one of the building blocks for the economy and for growth, is in danger of dragging it down.<\/p>\n
By coincidence, I spent a few hours last week at the UK Real Estate Investment and Infrastructure Forum (UKREiiF), held again at the Royal Armouries Museum in Leeds. Sometimes described as Cannes without the sunshine (a reference to the annual Mipim global real estate gathering<\/a> in the south of France, though the weather was fine in Leeds), it has become a big event in its own right.<\/p>\n It is where regions and local authorities hoping to attract investment meet with investors and developers, and where the construction industry and the many services associated with it come to do business.<\/p>\n Construction is going through a tough time. Figures released last week by the tax and auditing firm RSM<\/a> showed brought it home. They showed that, at 3,827, the construction industry experienced the highest number of insolvencies of any sector in the 12 months to March 2026, making up 16 per cent of all across the economy.<\/p>\n That is not the only downbeat picture. Starting with housebuilding, the government\u2019s flagship target is for 1.5 million new homes during this parliament. I have always thought, and written<\/a>, that this is an unattainable target \u2014 and so it is proving.<\/p>\n The 1.5 million figure is defined in terms of net additional dwellings, which includes conversions as well as new housebuilding. The target is for England; the latest figures we have are that there were 208,600 net additional dwellings in 2024-25, consisting of 190,600 new-build homes, 17,710 gains from change of use between non-domestic and residential, 3,850 from conversions between houses and flats, and 1,080 other gains, offset by 4,630 demolitions.<\/p>\n Not only does this annual total for (mostly) Labour\u2019s first year in office show the government on target for something closer to 1 million rather than 1.5 million over the course of this parliament, but it was down 6 per cent on the previous year.<\/p>\n More timely figures are produced for new-build homes only, and these showed housing completions of 142,050 last year for England and 170,390 for the UK, compared with 153,840 and 184,390, respectively, in the previous year \u2014 a drop of about 7.5 per cent in each case.<\/p>\n Even more timely data, and an important forward-looking indicator, is for new home registrations notified to NHBC, the UK\u2019s largest provider of home warranties and insurance. In the first three months of this year, new homes registered to be built were down by 6 per cent<\/a> on a year earlier.<\/p>\n I feel sorry for housebuilders, which is not something you hear often. There was a surprising boom in house prices during the pandemic, but they were constrained by restrictions. The post-Covid upturn they expected then ran into higher interest rates, including the mortgage rate carnage of the autumn of 2022, when Liz Truss was briefly prime minister.<\/p>\n Since 2022, house prices have fallen substantially in real terms (adjusted for inflation) at a time when builders\u2019 costs and regulations have increased. The latest official figures show a 7.7 per cent increase in raw material and fuel costs over the past 12 months. And, to cap it all, like other parts of construction, housebuilders have lost many skilled and available workers because of Brexit.<\/p>\n The surprise, perhaps, is that the industry was turning down even before Donald Trump\u2019s reckless war with Iran, when the prospect was of further interest rates cuts this year. That war has made things worse. My colleague Oliver Gill has reported extensively on the problems at Vistry<\/a>, one of our leading housebuilders.<\/p>\n As for the wider construction industry, another purchasing managers\u2019 index, this time just for the construction sector, was very weak last month at 39.7 \u2014 levels below 50 indicate decline \u2014 and weakest of all was civil engineering, at 35.3, followed by residential and then commercial work.<\/p>\n The drop in civil engineering, which is particularly associated with infrastructure work, was said by S&P, which compiles the index, to be due to a lack of new work to replace completed contracts, with uncertainty resulting from events in the Middle East playing a part.<\/p>\n In light of all this, what was the mood at UKREiiF, which was attended by more than 16,000 delegates? They were treated to a range of government ministers, including a \u201cfireside chat\u201d with Rachel Reeves, which was well received. Her announcement that legal delays to infrastructure projects would be restricted was welcomed. This was before her petrol station encounter<\/a> with an obnoxious Reform UK supporter, which she handled well.<\/p>\n Matthew Pennycook, the housing and planning minister, revealed an understanding of the industry. \u201cEveryone in this room will know that the very real challenges the sector has experienced over recent years \u2014 rising interest rates, significant increases in building materials costs and dampened buyer demand \u2014 have been exacerbated by the global turbulence of recent months,\u201d he said. <\/p>\n \u201cWe also appreciate that your present challenges follow a series of housing market downturns, the scars of which your cash reserves, supply chains and project pipelines still bear.\u201d<\/p>\n Pennycook also challenged the view, expounded recently by some of Labour\u2019s leadership candidates, that the government had been unprepared for office. He said that in opposition the party had developed proposals for the most \u201cradical overhaul of the housing and planning system in decades\u201d, which again has been welcomed by the industry.<\/p>\n So despite the problems, I would say that the atmosphere in Leeds was, if not upbeat, then cautiously optimistic \u2014 and realistic. I would hope that the mood of not too many people was spoilt by the train journey south, which, through no fault of LNER, was chaotic. I would describe the most crowded train I have ever travelled on as being like a cattle truck, except I doubt the RSPCA would allow cattle to be transported in those conditions.<\/p>\n Housebuilding would like a bit more help from the government \u2014 perhaps a new Help to Buy scheme \u2014 and the wider industry wants more orders and contracts, including public sector ones. But all is not lost. Official figures show that construction contributed to gross domestic product (GDP) in the first quarter growing by 0.6 per cent, thanks to a jump in March. We will need some more of that in the coming months and years.<\/p>\n PS <\/p>\n Official statistics come in for lot of flak, most unjustified, but there is one number every month that does deserve a health warning. This is the figure for the number of people on payrolls, derived from HM Revenue & Customs data, which the Office for National Statistics began publishing in response to problems with its long-running labour force survey<\/a> (LFS).<\/p>\n A few days ago, the ONS\u2019s \u201cflash\u201d estimate was that payroll numbers had plunged by 100,000 last month, which, if true, would suggest we are due a huge rise in unemployment in the coming months. <\/p>\n Rarely, however, have we seen a figure greeted with such scepticism by economists. The official statisticians, to be fair, warned that the numbers are prone to revision, particularly those for the early months of a new tax year.<\/p>\n So, I decided to check. The flash estimate for April last year was for drop in payroll numbers of 33,000, but now the figure for that month shows a rise of 6,000. Even more dramatic was the figure for April 2024, which initially showed a plunge of 85,000 \u2014 not helpful to the Tories in the run-up to the general election \u2014 but was subsequently revised to a rise of 32,000. Quite a turnaround, and every reason to take the latest figure with a pinch of salt.<\/p>\n