UK and eurozone housebuilding hit by ‘perfect storm’

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New statistics from the UK and the euro zone today underscore the perilous state of the homebuilding industry hit by rising interest rates, skills shortages and high inflation.

According to the S&P Global/Cips UK Construction Purchasing Managers Index, UK homebuilding fell in August at the second-fastest rate since the first coronavirus lockdown, as concerns about the economic outlook dampened demand for new construction, especially in the residential sector. need.

Big developers such as Crest Nicholson, Taylor Wimpey and Persimmon have warned of profits under a “perfect storm” of events, including rising borrowing costs as the government withdraws its Help to Buy scheme for state-subsidized loans for first-home buyers. .

Barratt Developments, the UK’s largest home builder, warned today that it will take at least two years for the new housing market to recover. Meanwhile, construction firms are closing at the fastest pace in a decade.

Soaring mortgage rates are also contributing to a squeeze on living standards in the UK, which is expected to persist for some time, according to separate survey data today. Interest rates are still at a 15-year high of 5.25%, despite Bank of England Governor Andrew Bailey suggesting today that the UK is nearing the peak of its policy tightening cycle.

Tenants face the same difficulties, as our “Extreme Rentals” series demonstrates. Residents in London have been hit particularly hard as landlords pass on higher borrowing costs, but the picture is equally bad across Europe.

In the euro zone, home construction fell at the fastest rate since the outbreak. Overall construction has fallen sharply in France and Italy, but it has been particularly severe in Germany, where the sector is in crisis as more and more large developers go bankrupt.

“We are at the tail end of a 10-15 year housing boom,” said Moritz Schularick, director of the Kiel Institute for World Economics. “The way the financial cycle is now, every day there is another Real estate developers go bankrupt . . . the old financing model is no longer sustainable.”

It was a different story across the Atlantic, where shares of big homebuilders surged despite higher mortgage rates amid a rebound in the new housing market. The market even attracted an $814 million bet from Warren Buffett’s Berkshire Hathaway.

Need to know: UK and European economies

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Need to Know: The Global Economy

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Need to Know: Business

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world of work

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some good news

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