'Build Cost Inflation' has in recent years has been a significant problem for UK Housebuilding, direct affecting scheme delivery and project viability.
BCIS reported that for the period 2020-2022 that build costs had increased by some 24%, well above levels of expected inflation.
Thankfully, although build costs remain high, build cost inflation appears to have softened in 2023. BCIS are forecasting 'Build Cost Inflation' of 5.1% for 2023 and 10.6% for the period 2024-2027.
This in part may be due the falling cost of some materials and supply chain issues being resolved: -
The ONS reporting a 20% decline in the cost of concrete, steel and timber over the last 12 months.
Supply chains have now adjusted to a post-pandemic economy and the initial disruption of the war in Ukraine.
Although the above are certainly contributory factors, weakening housebuilder build activity has been identified as the crucial factor.
Declining build activity is driven by the impact of:-
High mortgage rates and the impact upon buyer demand
The 'Cost of Living Crisis'
The difficulties in obtaining planning consent and timescales for achieving consents.
In October 2023 the S&P Global/CIPS UK Construction PMI identified that housebuilding has decreased for the eleventh successive month.
Furthermore, some National housebuilders have announced that 2023 will see reductions in the numbers of houses built, with Barratt Homes reporting that they will built 20% less homes this year.
The above is illustrated by a stagnation of material demand from housebuilders as reported by the major building merchants, with Travis Perkins issuing a profit warning as a consequence.
So, declining 'Build Cost Inflation' is a subtle marker for the current challenges facing UK Housebuilding.
It should not be forgotten how important a component to the UK economy housebuilding is, providing some some 3% of UK economic output which is valued at £41 Billion and supporting c.700,000 jobs.
