Analysts have downgraded profit estimates across the sector for 2010, although Credit Suisse believes the sector has attractions for investors with a longer term view. UK interest rates look to start going up slowly, and demand for housing increases as slowly. That demand will be flat as long as unemployment remains high. And as price rises moderate or even remain flat, the gap between average house prices and average earnings will remain narrow, keeping the affordability gap as wide as 2009.

 

Empty construction sites and half-finished developments, those stark reminders of the impact of the downturn on local economies, will be with us a little longer, despite the official emergence from recession.

 

A number of different sets of figures published this week agree on one thing — construction is definitely not out of recession and is not expected to be until 2011.

 

The reason for the gloomy outlook is the sharp decline in private building (both housebuilding and commercial development of shops and offices) in the past two years. Private housing construction has fallen to a level not seen since the early 1990s, according to ConstructionSkills, an industry representative.

 

However, this is likely to be the first sector within the construction industry to recover. The big housebuilders agree that new starts (work on sites) began to pick up in the second half of last year, in response to rising house prices. While this is not expected to be big enough to offset the impact of the downturn immediately, ConstructionSkills has forecast growth of 8 per cent a year between 2010 and 2014, higher than the sector’s long-term average annual growth rate of 5 per cent.

 

The outlook is less encouraging for the public sector. Although it has not suffered to the same extent as the private sector, activity is likely to tail off from next year, as the Government tries to reduce its deficit.  The outlook remains gloomy as the government cuts back on public sector construction