Construction output across Great Britain fell again at the start of 2026 with a sharp decline in private housing activity highlighting the continued slowdown in development pipelines.
Latest data from the Office for National Statistics shows total construction output dropped by 2.0% in the three months to January 2026, marking the fourth consecutive fall in the rolling three-month series.
The decline reflects weaker activity across both new projects and ongoing works, reinforcing concerns that higher borrowing costs and cautious investor sentiment are still weighing on the sector.
New work fell by 3.2% over the period, while repair and maintenance slipped by 0.4%, with seven of the nine construction sectors reporting lower output.
HOUSING SLOWDOWN
The largest negative contribution came from private new housing, which fell by 6.3% as slowdown in residential development continues.
For the specialist finance and bridging market, the figures suggest developers remain cautious about starting new schemes, particularly in the private housing sector where funding costs and sales uncertainty continue to affect viability.
Lower levels of new build activity can also translate into reduced demand for development finance, while at the same time increasing reliance on short-term funding to complete or restructure existing projects.
Despite the weak three-month trend, there was a small improvement on a monthly basis. Construction output rose by 0.2% in January, following three consecutive monthly declines.
However, the increase was driven entirely by repair and maintenance work, which grew by 3.3%, while new work fell by 2.0% in the same period.
The shift towards refurbishment and maintenance activity may provide some support for the bridging sector, where short-term finance is often used to fund property upgrades, conversions and repositioning projects, even as ground-up development remains subdued.
CHALLENGING CONDITIONS
Neil Leitch (main picture, inset), Managing Director of Development Finance, Hampshire Trust Bank, says: “A fall in housebuilding output will disappoint policymakers, but it will not surprise anyone working in the sector. Developers have been operating in very challenging conditions and the industry is still struggling to regain momentum.
“The deeper issue is viability. Planning delays remain a major constraint, but the pressure is broader than that. Policy costs have increased, inflation uncertainty has returned and funding conditions are less predictable than many expected coming into the year.
“At the same time, land expectations have not always adjusted to reflect tighter margins, leaving schemes with far less flexibility to absorb additional cost pressure or programme delays once delivery begins.
“Wider geopolitical instability, particularly the recent volatility in energy markets linked to tensions in the Middle East, is another reminder of how quickly input costs can shift and why margins across the sector remain under pressure.”
CASH FLOW CONSTRAINTS
And he adds: “For SME developers in particular, those pressures can quickly become decisive. Delays and cost uncertainty affect cash flow, site turnover and the ability to recycle capital into future projects, meaning delivery capacity can quietly drop out of the market.
“Demand for new homes is not the issue. The challenge is creating the conditions that allow developers to move from approval to start with confidence. Decisions delayed today, or schemes that no longer work commercially, will feed through into weaker housing output in the years ahead.
“That said, well-structured projects with realistic assumptions and strong funding support are still progressing. Developers who plan conservatively and work with experienced lenders are better placed to navigate the uncertainty and keep delivery moving.”
