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House building will remain depressed, says Capital Economics

House building will remain depressed for some time despite positive results in the Q2, says Capital Economics.

The construction industry contributed 0.4% to the 1.1% growth in GDP in Q2 2010 and Capital Economics say house building appears to have been a big factor.

But Paul Diggle, property economist at Capital Economics, warns that bad weather in Q1 distorted the figures in Q2.

He adds: “Although private starts have already risen by 75% from their low, they remain very depressed suggesting that there is still ample potential for further punchy increases in the near term. But it is also important to recognise that the sector faces considerable headwinds over the next couple of years.

“For a start, the apparent drop in buyer confidence, still tight credit conditions and signs of renewed falls in house prices will all temper confidence in the sector. In addition, cuts to Kickstart, the government scheme designed to provide finance to re-start mothballed schemes, combined with a continued rationing of development finance, means that funding for house-building is likely to be in short supply in the next few years. The overhaul of the planning framework will also weigh on activity levels.

“In short, we don’t expect the level of house-building to return to the historic norm for the foreseeable future.”

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