Political uncertainty can inevitably disrupt the flow of new orders and the progress of new developments.
Data in the Glenigan Index shows that the decision to call a snap election had a marked impact on the industry with new project starts in the three months to May down 8% on the period last year. Non-residential projects were particularly hard-hit, with falls in offices, retail, hotel & leisure, education and community & amenity projects, contributing to a fall of 17% in new starts across the sector.
Given the ambiguous election result, it is not clear how quickly the industry can expect activity to rebound. Some public sector projects which were put on hold by the purdah ahead of voting day, particularly in the education and community & amenity sectors, can now be expected to go ahead. Industrial building starts, which have continued to strengthen, should also contribute to a pick-up in project starts over the Summer. However other private-led sectors such as retail, offices and hotel & leisure may be more dependent on more fickle political and consumer sentiment.
The election result and the prospect of a hung Parliament did hit the share prices of major quoted housebuilders and property groups after the vote although they were quick to recover. FTSE 250 housebuilder Crest Nicholson has since warned that the election result may bring some short term uncertainty although it expects the new build homes market to remain robust.
The latest Glenigan Index points to some easing off in the pace of new housing activity over the Spring. After healthy rises during every month since January, new residential starts in the three months to May were down 3% on the period last year, reflecting a stabilising in private starts and fewer social housing starts, which fell 8% on a year ago.
Meanwhile, evidence mounts that the private housing market is cooling. Mortgage approvals were down 6% in the three months to May on the previous quarter, according to the Bank of England and Halifax figures show house prices in the quarter to June rose just 1.2%, the slowest rate since the end of 2014.
By contrast, civil engineering stands out as a bright spot in the industry. Having fallen every month for the past year, the Glenigan Index for civil engineering rebounded sharply in the quarter to May, with a 13% rise in new starts, compared to the period a year ago. A sharp increase in utilities work enabled the sector to offset a dip in new infrastructure starts.
The Glenigan Index also highlights marked regional variations in new development with activity in London continuing to slow whilst it picks up in key English regions. New project starts fell by 35% in the capital in the three months to May on the period last year, whilst they rose by 48% in the North East, by 39% in the North West and by 22% in the East of England. Meanwhile, in Scotland, where new project starts fell by 23% in the quarter to May, private sector sentiment may benefit after the election result has made a second independence referendum less likely.