Thanks to a surge in demand for housing and commercial property, the UK construction sector is attracting high levels of investment.
New data from money.co.uk has revealed how much investment each industry receives through enterprise investment schemes (EIS) or seed enterprise investment schemes (SEIS), which are government initiatives designed to encourage private investors to back UK businesses and sectors.
The research looks at how much investment came through for each sector in 2022/2023, compared with the funds raised in 2020/2021, to determine the fastest growing sector for investment, with the accommodation and food and the construction industries coming out on top.
In numbers, while accommodation and food businesses received £47 million of investment last year, up by 80.77% from the 2020/2021 period, construction benefited from £16 million of funds raised through EIS or SEIS, representing a rise of 77.78%.
This is likely to have been driven by a growth in demand, with the UK housing sector continuing to lag behind demand, as well as the past and current government housebuilding targets spurring on investment.
The research noted: “Higher levels of investment in the industry could be influenced by the rising cost of materials and labour, causing construction companies to seek investment to pull off bigger projects with lots of profit potential for firms and investors alike.”
Construction is vital to UK economy
The construction industry’s growth is down to both public and private demand, and this is only expected to continue to increase with Labour’s plans to significantly boost housebuilding by 1.5 million new homes over the next five years.
One of Labour’s strategies is to create a series of ‘new towns’, akin to the likes of Milton Keynes and Welwyn Garden City, and this will require a further ramping up of activity within the construction space.
According to the latest research, the industry has not only seen a rise in the amount of money coming in from private investors through EIS and SEIS funding – which offers investors certain tax benefits to encourage them to back new and early-stage businesses in certain sectors – but it has also seen a 42.9% increase in the number of firms benefiting.
The report discovered that the number of businesses invested in during 2022/2023 increased to a total of 50, up from 35 in 2020/2021 – which demonstrates “how vital the sector is to the rest of the economy”.
It adds: “The construction industry builds and maintains the housing and infrastructure needed to keep other industries going. Recently, the sector has faced a skills shortage, prompting increased investment to boost productivity.”
What is the new towns plan?
The Labour government is planning to create a new generation of new towns, that would deliver hundreds of thousands of new homes as well as the necessary infrastructure, amenities and new businesses to support this.
One of the potential benefits of creating new towns is that, historically, new homes in these purpose-built towns are created at a much faster pace than they are in pre-existing areas, for a number of reasons. However, critics argue that they may not make a huge dent on the 1.5 million new homes target.
In fact, as opposed to the focus being primarily on creating entire new places, the government has acknowledged that extending and expanding existing urban areas, which can create far more properties in total. Local authorities will be given new targets that they must meet, with an aim of unclogging the planning backlog.
The hope is also that the private sector will fund much of the construction of the new towns, which is likely to involve government-led incentives.
The government has pledged to set up a New Towns Commission within six months of coming to power, while a list of sites for these new construction areas would be decided on within a year.
