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A fall in house building and labour shortages in Wales continued to drag on the Welsh construction sector in the second quarter of the year. According to the latest construction monitor from the Royal Institution of Chartered Surveyors (RICS), private house building workloads fell sharply for the third quarter at a net balance of -24%.

This was a further decline compared to Q1 2023 and the lowest the net balance has been in three years. While the sector continues to be impacted by skill shortages across the board in Wales, which is reported to be the biggest factor limiting activity.

The survey found 61% reported a shortage in quantity surveyors, 56% reported a shortage in construction professionals, and 68% recorded a shortage in bricklayers. There were also declines in private industrial (-8%), infrastructure (-4%) and private commercial (-13%).

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In terms of overall workloads, a net balance of just 4% said that workloads had risen in Q2 2023 - the lowest figure in over two years. However, some subsectors saw an increase in workloads including public housing (22%) and other public works (4%).

Some surveyors (a net balance of 14%) said they expect overall workloads to improve in the 12-months ahead. This is up slightly from Q1 figures of 12% and largely in line with the º£½ÇÊÓƵ-wide expectations, where 9% of surveyors anticipate an increase.

Despite this, profit margins of construction firms in Wales are expected to be squeezed further over the next year as a result of rising interest rates and material costs.

Huw Thomas from Isle of Anglesey County Council in Llangefni said: “The increase in material and labour costs due to inflation and the lack of good quality labour are impacting on the market.”

Andrew Davies of Swansea-based Hurley & Davies said: “There are skills shortages across the board and little influence on carbon-reducing measures in our sector.”

RICS chief economist Simon Rubinsohn said: “Feedback to the Q2 survey shows the rising trend in base rates is leading to increased financial pressures in the construction industry. This is not anticipated to lessen any time soon and is also reflected in the cautious assessment regarding the outlook for profitability.”

He added: “However, there are some signs of an easing in the extent of skill shortages which is accompanying the flatter trend in activity. Infrastructure numbers remain solid, but the survey provides further evidence of the challenges in delivering residential developments at the current time.”