Bubble concern eased as building breaks six-year slump

Fears over an unsustainable house price bubble that could pose a threat to economic stability have been eased following publication of Royal Institution of Chartered Surveyors data showing an increase in housebuilding in every region of the UK for the first time in six years.

The rises, which marked the first time since 2007 that every region has recorded increases simultaneously, demonstrates that a “long-awaited upturn” in the number of new homes being built may finally be underway, according to Rics.

However, it added that the country is “not out of the woods yet” as it stressed that housebuilding activity is still “way behind” where it needs to be to meet the growing demand and cited anecdotal evidence of skills shortages and materials capacity constraints.

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Rics’ Construction market survey for Q3 2013 revealed that a record net balance of 41 per cent more respondents reported rises in privately-funded housing projects across the UK, compared with the previous period, from +31 per cent in Q2.

The figures will be welcomed across an industry that has been expressed widespread concern over a house price bubble amid surging demand catalysed by the government’s Help to Buy mortgage loans and mortgage guarantee scheme, the latter of which will be rolled out in January.

This concern prompted intervention from the Treasury Select Committee earlier this month, which warned that the scheme appeared likely to simply “raise house prices rather than stimulate new supply” and therefore poses a serious risk to financial stability.

Arguing that future governments would face “strong incentives” to continue the scheme beyond its current three-year term, the panel of MPs called on the government to “re-examine the case” for giving the Bank’s macroprudential regulator an “explicit veto” over the continuation of the scheme”.

Rics data show the overall construction sector saw a similar boost during the three months to September, with workloads rising at their strongest rate since the summer of 2004 with a net balance of +31 per cent.

Alongside housebuilding, this growth was largely driven by private commercial and industrial developments as “funding finally begins to filter through to actual shovels in the ground”.

Simon Rubinsohn, chief economist at Rics, said: “While it’s certainly good news that construction - and especially housebuilding - is finally on the rise right across the UK, we are certainly not out of the woods yet.

“Critically, we’re still way behind in terms of building enough homes to meet the nation’s growing housing need and overall construction projects are at a historical low. In the face of this challenge, it is a particularly concerning that we are already receiving reports of some skill shortages as well as capacity constraints for some building materials such as bricks.”