Housing Weakness Weighs on Construction as Credit Outlook Deteriorates

Construction workloads weakened in Q3 2026 as housing activity came under renewed pressure and concerns over access to and the cost of finance intensified, according to the latest RICS UK Construction Monitor.

The headline workloads indicator fell to a net balance of -7%, from -4% in Q2, marking a sixth consecutive quarter in negative territory. The reading means more survey respondents reported falling workloads than rising workloads.

Private Housing

Private housing remained the weakest sector, with its workloads net balance declining to -18%, from -12%. Public housing also lost momentum, moving into negative territory at -6%, compared with +1% in the previous quarter.

The slowdown extended to private commercial construction, where the net balance slipped to -10%, from -7%. Private industrial activity remained subdued at -7%, although this represented a slight improvement on Q2.

Construction Costs

Respondents became markedly more cautious about the financing environment. The net balance for credit conditions over the next three months fell to -36%, from -21%, while the twelve-month outlook weakened to -32%, from -13%.

Survey feedback linked these concerns to rising gilt yields during the quarter and the associated increase in borrowing costs.

Financial constraints and planning and regulation were each cited by 62% of respondents as factors limiting building activity. Contributors continued to highlight Building Safety Regulator approval timescales, alongside nutrient neutrality and biodiversity net gain requirements, as sources of delay.

Insufficient demand was reported as a constraint by 41% of respondents, while 36% cited labour shortages.

Infrastructure

Infrastructure continued to outperform the wider market. Its workloads net balance rose to +18%, from +16%, the strongest reading in eight quarters.

Energy remained the strongest infrastructure subsector at +37%. Water and sewage activity strengthened to +30%, from +23%, while roads improved to +12%, from +7%.

Infrastructure also led expectations for the year ahead, with a twelve-month workloads net balance of +35%, compared with +5% for private residential construction and +10% for private non-residential activity.

Outlook

Despite weaker current activity, respondents continued to anticipate a modest improvement in overall workloads over the next twelve months. The headline expectations net balance was broadly unchanged at +12%, compared with +13% in Q2. Employment expectations edged up to +15%.

However, profit margin expectations deteriorated to -13%, from -10%, suggesting continued pressure on firms’ profitability.

Cost expectations eased for a second consecutive quarter but remained elevated by historical standards. Respondents expect materials costs to rise by 6.5% over the next year, overall construction costs by 5.8% and tender prices by 5.0%.

Simon Rubinsohn, RICS Chief Economist

Simon Rubinsohn, RICS Chief Economist, said: “RICS data continues to show the financial pressures on housebuilders as the key factor holding back development with increased regulatory costs significantly impacting viability alongside rising material prices.

“The Your First Home scheme, while welcome, cannot alone improve the housing construction pipeline which is running someway below what was projected by the government.

“The latest RICS survey also highlights the ongoing challenges around securing planning permissions despite the passage of the Planning and Infrastructure Act, which has improved approval and response times.

“Critically, the results point to the pressure on profit margins remaining intense through the course of 2027, which will likely compel developers to remain highly selective in their focus.”

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