Home » Cost growth in housebuilding eases ahead of fears of housing market slowdown

Cost growth in housebuilding eases ahead of fears of housing market slowdown

Published: 14/12/2022

2022 saw record growth in housebuilding costs, as measured by the BCIS Private Housing Construction Cost Index (PHPCI). The annual growth rate in the 3Q2022 was 14% down on the 15.3% in 2Q2022, which was the highest level since the series was introduced in 1998. The 3Q2022 index was up 2.2% compared to the 2Q2022.

All respondents report increased costs, with 43% reporting an increase in subcontractors cost, and 38% an increase in both labour and material costs. The remaining one fifth of the respondents continue to cite materials cost increase as the main driver behind the rise in their construction costs.

When asked about the expectations for the next quarter, respondents to the PHCPI survey expect housebuilding costs to grow by an average of 2%.

According to the Office for National Statistics (ONS) private housing construction output increased by 2.4% in 3Q2022 and by 12.7% in the year from 3Q2021.

However, the commentary provided by the respondents to the survey shows a concern over an expected slowdown in 2023. The fallout from the mini-budget in September had a significant impact on the housing market. Rapid increase in mortgage rates and inflationary pressures on the household spending resulted in a reduced demand and falling house prices. The latest Halifax Price Index reported the annual growth in house prices going down to 4.7% in November, representing a monthly drop of 2.3% – the highest since 2008 and the third consecutive fall in 2022.

BCIS continues to monitor the readiness of the industry to meet the requirements of the new Building Regulations. 40% of respondents report to be trialing various solutions and nearly a third of respondents are in progress of implementation. 7% of respondents haven’t started with any preparations. The estimated cost uplift for meeting Part L as reported by housebuilders in 3Q2022 stands at 4.5%.

Source: PHCPI Survey

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 data@bcis.co.uk.

The PHPCI is published in the BCIS online service.

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