As I got home last night from doing my weekly shop, I took a moment to look at my receipt – £65.79. What would have cost me £51.49 a year ago, the cost of inflation has added £14 to my shopping bill.
Given the fact that I love my job, I could not help but think where build costs currently sit, and if they will come down? Here is my take on where we have come from pre-pandemic and my predictions for the next 12 months.
The Good Times
Now I know that my £14 increase in my shopping bill is a little different from the rising build costs, however it can be something so small that triggers a thought process that makes you ask more questions than can possibly be answered.
Let me take you back to February 2020, the pre-pandemic good times! Imagine the scene across the country, the construction industry is booming, house prices are at an all-time high, land is at a premium, and the manufacturing sector where the construction industry sources key materials is at capacity – working around the clock to provide key materials, white goods, bricks, timber, pre-cast concrete, windows and everything in-between. At the time the warehouses were stocked with around three to six months’ worth of stock, with localised shortages and elongated lead times, something that the industry copes with on a week-by-week basis.
Fast forward to June 2020, many, if not most of the construction industry was just starting to come back on a site-by-site basis, new procedures were in place for social distancing, and the industry was extremely worried about the impact that the pandemic would have on people’s ability and eagerness to buy homes. In short, we needn’t have worried, demand was at an all-time high, and the industry was the busiest I had seen it in eight years. The trouble this caused was unseen for around three to five months, material was getting through to sites, however given the demand and coupled with the fact that manufacturing was coming back slowly, the warehouse stock soon ran out and therefore this meant that they were only producing to order with little or no stock. What this meant was that to get available materials into the sector, prices were raised to slow demand and to help produce more.
A year on from the pandemic the build cost for materials had jumped to over 20%, now it would be wrong just to say the pandemic, as another big impact on the sector was around the Government legislation surrounding red diesel, which pushed the groundworker and manufacturer prices up even further. All this with fuel prices at their highest ever; I remember paying £2 a litre in diesel, given I passed my test in 2015, I started driving when I was paying £1 per litre, how times have changed!
So where are we today? Finally after eighteen months, costs are stabilising. Yes, they are higher than pre-pandemic, however commercial teams are finding it easier to predict and manage and are no longer having to report cost increases on a monthly/weekly basis. The price of timber has come down, to pre-pandemic levels (on a side note this means that the price of timber frame open panel is now on par with traditional build for the first time since I have been doing timber frame). Main contractors are now more comfortable fixing their prices for 12-18 months – some even longer. The price of diesel and petrol has come down by around 50p, not quite pre-pandemic levels but a more sustainable and fixed price than the volatility seen over the previous 12 months. Brick prices had been slowly creeping up pre-pandemic and given what the pandemic did to the manufacturing sector, they have continued to increase. Only recently did they slow to a point where they have now levelled out, and while it remains to be seen if this stays the same over the next three months it shows that key elements to our industry are starting to level out and stabilise.
Now this is the part that I must put something on the block and give an educated guess, or a Gary Neville type prediction – let’s hope I have a better prediction rate than Gary Neville though!
So, in my opinion, prices will over the course of 2023 start to decrease. At V10 we are seeing main contractors fix for the duration of the programme which is including the planning journey – something which was un-heard of only three months ago. Why are they doing this you may ask? Well, in truth its more than likely they see this time over the next three months where costs are at the tipping point and are at the highest they will be. The likelihood is that come the end of the year prices for materials and manufactured goods will actually fall, so therefore rather than having to reduce their build cost they start to make a margin as they can buy it cheaper.
With timber coming down even further, it remains to be seen whether bricks will come down greatly, however pre-cast concrete prices are slowly creeping down which is giving both timber trame and RC frame a more competitive base than those of traditional build methods. This means contractors and developers have the ability to chop and change to get the best commercial outcome for all sites going forward.
Unspoken Labour Costs
Now I could not write this without factoring in the unspoken labour costs. The cost increases seen to date have all been manufacturing and buying costs. Due to the rise in consumer inflation over the last six months companies up and down the country have given benefits to employees. Certain developers have given up to £2,000 over the course of the last four months to those workers earning less than £49,000. It remains to be seen whether wage demands increase. If so, then it could mean a rise in total build cost inflation. However most companies have factored that in over the past six months and therefore it’s unlikely to have any correlation with build/cost inflation over the next year.
Getting Back to Normal
And so as I put my receipt away and contemplate the fact I could have been £14 better off, I remain confident that over the next 12 months the industry, economy, and life in general will stabilise, and I am bounded by the fact that over the next 12 months it’s prime time V10 territory, delivering much need affordable homes, with professional and dedicated RPs and main contractors in our operational patch.
Head of Pre-Construction & Sustainability