No let-up in housing output woe, says CPA

Construction activity is likely to contract 2.5% in 2026, according to the Construction Products Association.

Unsurprisingly, much of this is down to the current conflict in the Middle East and its potential impacts on the UK economy and construction industry. The CPA’s latest set of forecasts, released this morning (May 5), reveals that it is increasingly likely the second half of this year will see both a drop in construction demand and sharp cost increases, especially in the two largest sectors, private housing and private housing repair, maintenance, and improvement (rm&i).

Overall, private housing output is forecast to fall by 7.0% in 2026 and remain flat in 2027. Private housing is the largest construction sector. After the persistent rain in January and February, which affected activity, there was stronger activity in March and April, with house builders eager to build out to meet demand for homebuyers who had mortgages approved before the latest increase in mortgage rates.

The CPA says its key concern is what happens to demand as these higher interest  rates are factored into purchasing decisions, especially as affordability in areas with higher house prices was already a key constraint for house builders. In addition, sharp cost increases will exacerbate site viability issues, leading to more problems for house builders.   .

There is still expected to be significant growth in infrastructure, the third-largest construction sector, given longer-term existing contracts, pipelines of activity and funding in place for future projects.

CPA Head of Construction Research, Rebecca Larkin, said: “At the start of this year, there was a degree of cautious optimism over the outlook for construction activity in 2026 and 2027 across most sectors. However, this has been replaced by stark concerns over global factors and oil and industrial energy cost rises, leading to a spike in inflation. The direct impact on construction will be double-digit construction product price inflation, especially in oil-based products and energy-intensive products, where UK industrial energy prices can account for up to one-third of total costs for manufacturers. Indirectly, however, increases in inflation across the economy will also hit confidence and spending or investment from potential homebuyers, homeowners, businesses, clients and investors. As a result, the largest construction impacts over the next 12-18 months are likely to be on private housing and private housing rm&i.”