Despite ongoing challenges related to labour and materials, residential construction looks set to get a boost in 2022.

House prices continue to soar in the UK, and according to the Deloitte Regional Crane Survey, construction activity has recently been boosted by residential development. It highlights a significant rise in new projects in certain key cities and notes that in 2021 the construction of student housing was 23% higher than in 2020.

The construction of new residential developments was especially strong in Manchester and Birmingham in 2021 and hit record levels in Leeds. Across the three cities, the construction of 19,763 new homes was underway in 2021 - the second highest on record. Meanwhile in Belfast, although there were no new homes under construction in 2021, two large mixed-use schemes that could deliver 1,200 new homes are expected to begin in 2022.

John Cooper, partner in real estate at Deloitte, commented: “Similar to residential growth trends in Manchester since 2014, Birmingham and Leeds have now also gained significant traction in new build to rent projects over successive survey years. This reflects favourable economic conditions and significant investment in placemaking including more outdoor amenities, the creation of new parks, and the introduction of independent and creative retail and leisure space. Through this investment, we are seeing the emergence of vibrant and popular neighbourhood communities in regional centres which will also continue to attract and retain the best talent in those locations.”

However, it’s not all good news for the sector. According to the Glenigan Index of construction starts to end of January 2022, residential project-starts were very weak - 45% down against the previous year and 20% down on the preceding three-month period. Private housing was the worst performing sector, with starts down 49% compared to the previous year and 28% down on the preceding three months.

It highlighted labour shortages and supply chain issues as the key reasons behind this trend, exacerbated by the rising price of materials and deteriorating economic prospects.

Meanwhile, many construction companies will be hit by the UK Government’s decision to force developers to fix the post-Grenfell cladding crisis.

Secretary of State for Levelling Up, Housing and Communities Michael Gove told developers in January that they “must pay to fix the cladding crisis that they caused” as he overhauls the government’s approach to building safety.

Mr Gove has written to industry giving them a deadline of early March to agree a fully funded plan of action including remediating unsafe cladding on 11-18 metre buildings, currently estimated to be £4 billion.

On the bright side, Glenigan said that a strong development pipeline bodes well for the rest of the year - and while most UK regions saw a decline in January, it noted that Wales enjoyed 20% growth against the previous year and 34% growth compared to the preceding three months.

Other factors set to have a positive on residential developments include the UK Government’s Levelling Up initiative, which places a strong focus on regeneration of regional towns and sets out to boost home ownership through the launch of a new £1.5 billion Levelling Up Home Building Fund, which will provide loans to SMEs. The government said it will further commit to building more genuinely affordable social housing.

The Help to Buy Scheme will continue to have an impact on the sector, despite having been restricted to first time buyers since June 2021. In addition, buyers are once again able to get 95% mortgages.

These are interesting times for residential construction, but the demand for new homes is not going away - and despite ongoing challenges, there are plenty of reasons to be optimistic for the rest of 2022.

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