Housebuilders’ costs are rising as output increases

The BCIS Private Housing Construction Price Index (PHCPI) calculated using housebuilders’ costs for 4Q2018 show an increase of 1.4% on the previous quarter and 4.3% increase when compared to the same quarter last year.

Construction output from the housing sector has been rising steadily since 2013 and at constant prices is up 8.6% in the year to 3Q2018.

Private housebuilders’ costs, in the latest quarter continue to rise as reported by 84% of contributors. Of those that indicated a cause, 62% stated that both labour and material costs had increased, whereas 19% of contributors reported labour and 19% material cost rises.

Rising costs reported by individual housebuilders in 4Q2018 are driven by increases in brick, block and timber being the most frequently mentioned material. The shortage of labour is also continuing to be a factor driving housebuilders costs higher.

Overall, housebuilders responses, confirmed labour and material being the dominant factors in cost increases with one contractor stating that:

‘Subcontractors cost has risen as follows:

wall tiler: +2.0%
scaffolder: +5.0%
mastic pointer: +10.0%

while materials cost has risen as follows:

carcass timber: +5.0%
joists: +6.0%
mouldings: +7.5%
trusses: +8.0%’.

There is still a great deal of Brexit-related uncertainty over the terms that will be agreed when the UK leaves the European Union. This does not ease an increased concern within the construction industry over the risk of higher labour and material costs and possible weak construction output generally.

While almost any outcome is still possible, it is not surprising that the responding contractors forecast for 1st quarter of 2019 indicates that the costs are expected to rise further by 0.92%.