The cost of construction materials is constantly escalating in the UK. The rate has reached a 40 year high which is based on the annual growth of the BICS material cost index. In the construction sector, there has been an increased global demand combined with multiple complex pandemic impacts. The pandemic has also resulted in unpredicted shortages, delays, and increased materials and manual labour prices.
The UK Brexit complications have heightened this situation, affecting all aspects of trades and labour availability. This is impacting the UK construction sector.
The productivity of construction has started to recover from its initial shock caused by the pandemic. In some instances, significant efficiencies have been reached due to the new working practice. Mostly in June in the summer, there was a drop in productivity due to subcontractors having to self-isolate when contacted by the Test and Trace system.
Construction demands are affecting other factors like lifestyle. The effects of lifestyle include people working from home and having to reassess home needs. The sustainability of the domestic housing market increased the demand for the maintenance and improvement sector, combined with large infrastructure projects such as HS2, which have significantly factored to the recovery in construction demands.
This becomes evident in ONS’ construction statistics showing a 12% drop in 2Q 2020, and construction output (all work) has increased by 9.7% in 2Q 2021, compared to the same time frame as the year before.
Construction output (all work)
Examination of the BCIS General Building Cost Index indicates a rise of 10.2% in September in comparison to the same period, precisely a year ago. The company that represents the most significant contribution to this increase would be BICS. The cost of materials increased in the index by approximately 19.7% during this time.
*Note: Data for January 2022 and 2023 is forecast; BCIS Plant Cost Index does not forecast. BCIS Materials Cost index is based on the materials component of the Price Adjustment Formulae Indices using factory gate prices. BCIS Labour Cost Index is based on promulgated nationally agreed wage awards (not site rates) * caption
Within the BICS Materials Cost Index, the most significant increase in cost can be noticed in the steel and timber classes, with a high degree of volatility in almost all materials categories. The range of increases throughout a variety of types can be seen below:
There are provisional price adjustments formulae for steel reinforcement, steel sections and timber, which have been shown to have an annual increase of 80%, 60.4% and 79.4% in September. There has been a decision by the British to add a £39 per tonne surcharge on the cost of structural steel, this is because of the ever-increasing prices, and this will continue to increase.
The increased resilience of imports is to fulfil the domestic timber use demands. We have also seen the need for timber-producing countries to put a log export ban in place as the timber supply remains under a lot of pressure in the UK. In November, BEIS Monthly Statistics of Building Materials and Components reported two of the top three building materials with the most significant price change in the year running to September 2021 were brought in sawn or planed wood (+73.3%) and particle board (+65.4%).
Across the UK, brick deliveries are facing extensive delays, with manufacturers warning there will be significant cost rises for any pre-orders due to the extreme market demand. Since February 2021, IHS/Markit CIPS UK Construction PMI has seen inflated costs and supply shortages of bricks. There have been sharp rises in wholesale energy prices due to the HGV shortage. This has affected the price of brick, block and ceramics, which is unlikely to improve, which will have productivity and critical path, particularly in the residential sector issues.
James Fiske, Director of BCIS, has analysed the impact of the price increase in materials. He commented: “The cost of materials in constructing a 3-bedroom semi-detached house[1] has increased by 14% or approximately £7,300 between January and September 2021. It is expected to grow by a further 1% or £600 by the end of this year[2].”
Joe Martin, the BCIS Lead Consultant, added: “The pressure on materials prices and availability is expected to continue at least until the end of 2022. Labour shortages are expected to evolve as the significant driver for overall construction cost increases next year, and the construction sector would need to compete for it with other sectors”.
[1] BCIS Review of House Building Trends, the average area of 3-bedroom semi-detached house 88.52m2
[2] Calculated by applying the forecast of the BCIS Material Price Index
SOURCE: RICS NEWS
