The COVID-19 pandemic had a major impact on sectors across the U.K. construction industry and beyond. At the height of the pandemic, Barbour ABI data confirmed that the industry saw at least £70bn worth of projects delayed or on-hold due to the impact of the coronavirus.
In the following weeks, construction was designated as essential work and many projects resumed works, with safety procedures put into place to ensure social distancing and on-site worker safety.
Since this time, with construction having remained open and functioning during subsequent lockdowns, there has been much attention of how to measure different sectors of the industry’s recovery and future prospects. With the residential market being a huge portion of the U.K. construction industry, and it being a market that the average consumer has many points of contact with, national attention has naturally focussed in large part on how this sector has recovered since the early days of the coronavirus lockdowns.
2020 lockdowns – What did it mean for the housing market in relation to construction projects?
An increase in home renovation, rather than upscaling to a new home
The at-home renovation and improvement market saw a big jump in 2020, as proven by the data displayed in our Home Improvement Report 2021, which can be downloaded for free. With buyers either unable, or unwilling, to take the risk of purchasing in such a turbulent year, the home improvement market saw a large rise in activity in the back half of 2020.
It became clear that possibly due to spending so much more time than ever at home, homeowners wanted to improve the places that they were living in. Whether it was interior redecorating, garden renovations or vital repair jobs that had been put off previously, many home improvement markets began to blossom across 2020 once lockdown restrictions began to be lifted.
Perhaps expectedly, due to the massive rise in remote working in 2020, there was a large impact on the home office market across the back half of the year. It will be interesting to continue monitoring this trend as the vaccine rollout and, hopefully, a drop in COVID-19 cases, leads to a more blended model of remote and office working for many.
Overall, home improvement planning applications in the second half of 2020 were more than 20% higher than over the same period in 2019, showing a clear rise in the trend compared to the previous pre-COVID times.
See which regions and sectors fared most favourably across the nation by accessing the Home Improvement Report 2021 for free.
Stamp Duty Holiday
The Stamp Duty holiday, introduced in July 2020, has led to a massive increase in the volume of house purchases since the scheme began. Figures from HMRC (quoted by Which) suggest that the number of sales in March of 2021 was almost double the number recorded in March 2020, and 32% more than in February 2021.
This data would suggest that fears early in March that the scheme was soon to end probably played a part. Then, following the Budget announcement that the scheme would be extended until the end of September 2021, a flurry of optimism and quick purchasing led to the success continuing throughout the month of March.
Buyers who have been able to work from home throughout the pandemic, thus accumulating more savings and therefore being able to afford a house sooner than expected have possibly played their part in this boom. It remains to be seen whether the boom continues throughout the remaining months of the Stamp Duty holiday.
As stated in our recent Deep Insights edition for Q1 2021, industry commentator Brian Green speculated upon the potential for the UK population to plateau or even potentially decrease across the next decade or so. The effects of the pandemic could have a part to play in this, with Brian suggesting that “the pandemic sparked a major outflow of EU citizens” – the advent of Brexit will have no doubt played its part in that migration too. The after-effects of these changes to the population wrought by the pandemic may end up influencing the future of the construction industry. As Brian says: “The likely impact would be a lurch from new build to repair and repurposing of our existing stock. With a falling population, who would support a political target of building 300,000 new homes a year?”
This theory may again possibly lead to further work in the home improvement and interior designing of existing homes, rather than a demand for new homes in the coming years.
Increase in House Prices
Estimates on how far house prices jumped last year range from around 6-8%, depending on sources. As housebuilders, estate agents and homeowners will want to recoup losses from the past 12 months, it’s unlikely that prices will drop any time soon. According to Nationwide, as quoted in The Guardian, house prices rose to their highest levels on record in February 2021, with sellers perhaps taking the chance to raise their prices as demand rose at a point when it was believed that the Stamp Duty holiday would be finishing by the end of the next month.
This continuing rise in house prices at a time when millennials are already struggling to climb onto the property ladder, combined with the job insecurity that many will be facing as the furlough scheme comes to an end, suggests that we may see the following trend continuing…
Generation Rent continuing
The number of millennials unable to afford to climb onto the property ladder appears to be continuing as house prices continue to rise faster than inflation. This could lead to a further increase in those aged between 18-35 remaining at home, as well as a continuation of shared living spaces and apartment complexes being a large focus of the residential construction industry, particularly within cities.
ONS data stating that rent prices increased by an average of 1.4% in 2020 would suggest that it will remain difficult for renters to accumulate enough savings to afford to buy a property in the near future. However, Chancellor Rishi Sunak’s introduction of a 5% deposit mortgage scheme in his March 2021 Budget has been designed as a way to entice first time buyers onto the property ladder. Time will tell how successful the scheme will be in doing so.
Where does the industry go from here?
In our February Snap Analysis review of construction, our data showed a 20% increase in residential contract awards in February 2021, compared to January 2021. There was then a further 1% increase in March compared to February. This provides some sustained optimism that the seeds of recovery are there, although our Chief Economist Tom Hall warns that it is still “too early to state that residential is back”.
Whilst the current data is promising, there is a less favourable forecast coming from many in the construction and banking industries.
As quoted in this Guardian article, Nationwide building society expect the house price market to slow “sharply” in the coming months, with Halifax estimating a drop of between 2-5%. The Office for Budget Responsibility is more pessimistic, predicting a drop of 8% in 2021. Whilst this news is a bad omen for economists and sellers, it may entice some younger buyers into being able to make their first steps onto the property ladder, particularly those who have worked from home and saved more during the pandemic.
Where the next generation of homeowners end up purchasing their homes will be another fascinating topic. As the work from home trend looks to continue for many long after the lockdowns of the past 12 months fade, we may begin to see a large rise in homes purchased outside of cities for those who no longer need to commute (or, at least, need to commute far less often) into offices for work.