Housebuilding costs continue to increase as build out rates are reduced to respond to market uncertainty

Annual housebuilding cost inflation slowed slightly in 4Q2022 to 12.8% but costs were still up 1.7% on the previous quarter.

The annual rate of increase, as measured by the BCIS Private Housing Construction Price Index (PHCPI) peaked at 15.3% in 2Q2022, the highest since the initiation of the series in 1988.

All respondents to this quarter’s survey cited increased costs, with 44% reporting increased subcontractors costs; 28% reporting increase in costs of both materials and labour, and 24% citing increases in materials costs only. Interestingly, a limited number of respondents reported a decrease in materials costs during the quarter.

Although the overall costs had risen in 4Q2022 in comparison to 3Q2022, the construction output in the private new housing has declined by 3.2% during the same period.

Cost-of-living crisis, rising interest rates (currently standing at 4.25%), end of the Help to Buy scheme and economic uncertainty are affecting the housing market, with output from the sector forecast to contract by 15.5% in 2023.

BCIS asked the respondents about their response to the uncertainty in the market. Nearly half reported that they’re postponing or reducing the build out rates. Nearly a third reduced selling prices with the remainder equally split between freezing the recruitment, offering additional incentives or not taking any further action.

When asked about their expectations for the next quarter, the survey respondents said they expect housebuilding costs to grow by an average of 1.4%.

BCIS continues to monitor the readiness of the industry to meet the requirements of the new Building Regulations. The estimated cost uplift for meeting Part L as reported by housebuilders in 4Q2022 stands at 3.6%.

Nearly 45% of respondents reported Air Source Heat Pumps (ASHP) as a chosen solution to meet requirements of the Part L, whereas 30% selected gas boilers and PV. The remaining respondents reported selecting a combination of the above. A limited number of respondents specified their selected choice as Gas boilers and PV combined with the extra wall and floor insulation and Mechanical Ventilation with Heat Recovery (MVHR).

We would like to thank respondents to this survey for their contribution.

The PHCPI is based on housebuilders’ costs in constructing a standard house. The index is adjusted for changes in specification and reflects only the movement in the underlying direct costs to housebuilders.

If you are a housebuilder and would like to participate in the BCIS PHCPI quarterly survey, please contact contactbcis@bcis.co.uk

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