Building Surveying: Why are Housebuilders’ Costs Rising?


The RICS recently announced findings from its Building Cost Information Service’s (BCIS) Private Housing Construction Price Index (PHCPI) which indicated that, virtually across the board, housebuilding costs were on the rise. But why is this? The team here at Munday + Cramer, a building surveying firm here in Essex, took a look at the report (as well as wider industry commentary) to find out exactly that.


The Statistics

Of the parties surveyed to help put together the index, a staggering 96% of respondents reported an overall increase in costs, with cost increases in materials, labour and supply chain delays cited as being amongst the most badly impacted. Interestingly – and rather worryingly – whilst costs might be increasing, predominantly due to those material shortages, Britain’s housebuilding output continues to boom and flourish.

Clearly, these two facts can’t be reconciled; either supply shortages have to be addressed, or building output will slow. Housing isn’t the only area of construction to be experiencing rapid growth, either, with commercial and civil engineering activity all picking up pace, according to a report by IHS Markit.

It’s also worth noting at this point that, although these findings focus (understandably given the body commissioning the analysis) on construction within the residential property sector, these increased costs are reflective of broader industry issues, being experienced across the board in construction, and not exclusively within the house-building sector.


Material and Labour Shortages, Supply Chain Issues All Driving Price Increases

It’s one of the simplest economic principles there is, the principle of supply and demand. The demand for new houses is quite clearly there (and then some!) and, therefore, so too is the demand for building materials. With the material shortages, labour shortages and supply chain issues as they currently are, however, demand is far outweighing supply and costs are invariably continuing to rise, as a consequence. With these issues identified as being the primary factor driving housebuilding costs skywards, it’s worth examining just what’s causing them.

COVID-19

Unsurprisingly, one of the leading causes is the Coronavirus pandemic. With, at best revised working conditions and diminished outputs, and at worst, activity being brought to a total standstill, the past eighteen months’ turbulence is continuing to have a downstream impact, today.

Cement, timber, certain steel products and raw material shortages for electrical products being just some of the supplies not readily available to contractors. Upstream supply issues are one of the root causes, here, with a backlog in the Chinese Pearl River Delta, for instance, leading to hundreds of container ships simply sitting waiting for a berth to become available.

Brexit

There have been reports – anecdotally, at least – that the extra admin and ‘red tape’ brought about by Brexit has contributed towards the issues mentioned before. NI contractor Graham, for example, stated that the added administrative burden introduced by Brexit has contributed to costly delays in getting materials delivered to project sites. Project managers and building surveying teams have been reported as noticing similar snags, too.

This seems to have become a common complaint – in the construction industry, yes – but also further afield, as well. Haulage firms are becoming tied in administrative knots, border import/export delays are worsening and a whole separate set of regulations are having to be adhered to. Whether these problems will (as the UK Government maintains) simply be ‘teething’ problems remains to be seen, but what’s not up for debate is that it’s causing issues now. There’s also an increasing shortage in the number of HGV drivers contributing to the issues, as well as downstream impacts of the Suez Canal incident earlier this year.

…The Demand, Itself!

Of course, the other main factor driving these material shortages and price hikes is the demand itself. We’re in a housing boom, with developers looking to bounce back strong after the past year. This means that, even if the industry wasn’t experiencing the material, labour and supply chain issues as a result of COVID-19 and Brexit, costs would likely still be climbing, regardless. It’s something of a vicious cycle – a housing bubble. But when exactly that bubble will burst? Well, that’s a harder question to answer.

Extended Stamp Duty Holiday

The stamp duty holiday introduced by UK Chancellor Rishi Sunak might well be more to do with property prices, themselves, as opposed necessarily to housebuilding costs, however all of these markets are intricately linked with one another. The stamp duty holiday has been one of the leading factors behind the house price boom, with bother buyers and sellers looking to make the most of this temporary halting.

Again, this has led to drastically increased market demand, which has trickled down into the house-building sector, with contractors looking to finish projects and make the most of demand whilst it’s still there. It’s a case of who blinks first in many ways, with the more cautious developers currently being outweighed by their bull-headed counterparts, who are equally cognisant of the fact that the demand bubble will at some point burst, but who are ploughing on, regardless. It’s been noticed in building surveying and home surveying circles, and it will be interesting to see how this progresses.


Contact Us

So, if you’d like to find out more about our building surveying services, then get in touch! Contact Munday + Cramer today on 01245 326 200 or by emailing us at info@mcessex.co.uk. Alternatively, you can fill out one of our online enquiry forms, and we’ll get back to you as quickly as possible. However you wish to get in touch, we look forward to hearing from you!