Housing construction is down 21% as interest rates rise significantly

Housebuilding is expected to fall by a fifth this year, according to a report, further evidence of the pressure caused by rising interest rates.

Figures from PwC suggest new house building activity will fall by 21.1 per cent in 2023 as higher mortgage costs combined with the general cost of living tightening weaken demand.

This corresponds to the slump in the pandemic year 2020, when production shrank by 20.8 percent.

The figures come after Berkeley, one of Britain’s largest housebuilders, said on Friday it had stopped buying land for new homes due to “significant uncertainty” in the economy and complex planning rules.

The PwC report suggests that while housing construction rebounded strongly in 2021 and 2022, it will see a major decline this year. This trend is being blamed on rising interest rates, which are currently at 5.25 percent and are expected to rise again later this month.

PwC’s Paul Sloman said: “With mortgage borrowing costs now at their highest level since 2008, the result would be fewer sales inquiries and slower decision-making among potential homeowners.”

“Faced with a sharp decline in demand, homebuilders will take action to save money and ensure they only build what they can sell.” “However, we are seeing green shoots and forecast an overall return to strong growth in 2024 and 2025. “

The report pointed to a 7.8 percent decline in new construction production this year when commercial and industrial construction is taken into account.

Commercial construction will fall 0.4 percent due to uncertainty over the return to the office, while industrial construction is expected to increase just 0.9 percent as the rush to build warehouses to meet online shopping demand subsides.

Repairs and maintenance have proven more difficult for builders as households spruce up their homes rather than move.

Separate figures from accounting firm BDO add to recent evidence that interest rate rises are taking their toll on the broader business environment and threaten to drag Britain into a downturn.

They showed an index measuring a decline in employment and a decline in business production for the second month in a row.

BDO partner Kaley Crossthwaite said: “Companies are responding to the higher interest rate environment with conservative hiring decisions.”

“We can expect a collapse in production, optimism and employment in the final months of 2023 due to rising unemployment and higher rates for businesses.”

This week, July GDP numbers are expected to fall 0.2 percent due to wet weather and strikes. Last week, Bank of England governor Andrew Bailey said interest rates had reached the “peak of the cycle”.