Construction slump 'perfect storm'

A slump in construction output could lead to a "perfect storm" without a massive increase in private sector projects to bolster the industry, according to a new report.

The study by Designing Buildings Wiki says quarterly growth of around a third of a billion pounds is needed to halt the decline in the trade.

The warning was issued after statistics showed private sector construction has shrunk by 15% over the past decade.

It comes despite a revision by the Office for National Statistics (ONS) in its prediction for the expected fall in the industry earlier this week. ONS figures showed that construction data dropped 3.9% in the second quarter, less than the 5.2% slump the office pencilled in in its first estimate of gross domestic product.

However, Designing Buildings Wiki reports that in the first half of 2012, both public and private sector output fell, resulting in total output dropping to a level 9% lower than it was in 2002. It said if the public sector continued to shrink, and the private sector does not grow to fill the void, the industry will enter a double dip recession.

David Trench, chairman of Designing Buildings Wiki, said: "Until the beginning of this year, the construction industry had held up pretty well, supported by increases in public spending. But in the last three quarters, public spending has dropped, and if the current trend continues we are headed for a perfect storm.

"Our analysis shows that to make up for public sector cuts, the private sector will have to increase output by more than a third of a billion every quarter just to maintain the current level of total output."

Mr Trench said the post credit crunch rise in new public sector projects was as "dramatic" as its recent decline. Between the beginning of 2008 and the peak in 2010, public sector housing grew by 60% and public sector non-housing by an extraordinary 78%. Since that peak, public sector housing has shrunk back by 25% and public sector non-housing by 31%.

Planning permissions, a precursor to construction, remain 30% lower than eight years ago, and architects were predicting that their workload would remain constant or decrease across all sectors in the next three months.

Mr Trench said that reintroducing tax relief on mortgages, stock relief allowances, capital allowances, and a selective employment tax giving tax breaks for employees engaged in manufacturing would help address the slump. He added that the focus needed to be pulled away from "grand projects" and put back on re-igniting those projects that had been put on hold.