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Growth in new housing construction gains momentum

New housing is being ordered at the fastest rate since 2007, with London leading the way

Recent growth in new housing orders and output

In the last six months, new housing has been one of the main growth areas in the construction industry.  This has particularly been evident in the growth in the value and volume of orders by construction companies to build new housing. This is not the same as the output of new housing, which is registered only when the properties are completed. As a result, increases or decreases in new orders will generally take many months to be reflected in output.

Most data on construction are seasonally-adjusted. This means that the data have been changed to remove patterns that occur at a similar time each year, such as decreases around public holidays. After this seasonal adjustment, the value of new housing orders increased by 16% (Barbour ABI) in the private sector and 31% in the public sector between Q1 2013 and Q2 2013.

Growth was overwhelmingly driven by London, where the value of new private sector housing orders more than tripled between Q1 2013 and Q2 2013; there was also a substantial increase in the East Midlands. However, some other regions, particularly the South East, saw decreases. Figure 1 illustrates the share of new housing orders by value in Q1 2013 (inner ring) and Q2 2013 (outer ring) inside and outside of London.  It should be noted that regional data for new housing orders are historically volatile on a quarterly basis, suggesting that factors such as the availability of land have a particular effect at the regional level.

Figure 1: Proportion of new housing orders in London and other regions, Q1 2013 (inner ring) and Q2 2013 (outer ring)

Figure 1: Proportion of new housing orders in London and other regions, Q1 2013 (inner ring) and Q2 2013 (outer ring)
Source: Barbour ABI

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Output of new housing also increased, but at a lesser rate, during Q2 2013. Seasonally-adjusted private housing output increased by 8% from Q1 2013, to its highest level since Q3 2008. This may in part reflect the impact of heavy snow during Q1 2013, which is likely to have led to delays in the completion of some developments; private housing output decreased by 8% in March 2013, before increasing by 12% in April.  However, public housing output increased slowly in both months.

Trends in housing orders and output over time

Figure 2 illustrates the value of new housing orders since 2004 in both the public and private sectors. The seasonally adjusted value of new orders in the private sector in Q2 2013 was the highest since Q4 2007, while new orders in the public sector are close to their highest levels in the last ten years.

Figure 2: Value of new housing orders by sector, seasonally adjusted

Figure 2: Value of new housing orders by sector, seasonally adjusted
Source: Barbour ABI

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Figure 3 illustrates relative changes in the value of output and new orders in private housing since 2004. A lag between changes in new orders and changes in output can be seen, particularly following the sharp decrease in new orders that began in 2007. The corresponding decrease in output, whilst still notable, was smaller than the decrease in new orders, and both started and ended later. Although increases in new orders may be reflected in increasing output at a later date, the extent and timing of this is uncertain because other factors affect output.

Figure 3: Value of output and new orders in private housing, seasonally adjusted

Figure 3: Value of output and new orders in private housing, seasonally adjusted

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Government policy in the housing market

The Help to Buy equity loan scheme began in April 2013, after being announced in November 2012. The scheme allows buyers with a minimum 5% deposit to take out an equity loan of up to 20% of the value of a new build property, up to a maximum property value of £600,000. This is distinct from the mortgage guarantee Help to Buy scheme, which began in October 2013 for purchases made from January 2014, in which the government underwrites 15% of the value of mortgages on both new and existing properties valued at up to £600,000 where buyers have a minimum 5% deposit.

The Home Builders Federation reported that 4,000 new homes were reserved during the first two months of the equity loan scheme; this equates to approximately 20% of all demand for new homes prior to the scheme, which is similar to the rate of increase in the ONS data. They also reported that some of their members had revised their projected build levels upwards due to the scheme, and the number of properties with approved planning permission increased 49% between Q2 2012 and Q2 2013, suggesting that home builders are optimistic about future demand. However, the extent of the impact of Help to Buy on the market cannot be precisely stated.

Categories: Business and Energy, Production Industries, Building and Construction, Output in the Construction Industry, Economy, National Accounts, National Income, Expenditure and Output
Content from the Office for National Statistics.
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