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Latest movement in the Private Housing Construction Price Index

Published: 14/12/2023

The BCIS Private Housing Construction Price Index is a measure of the prices paid by housebuilders for constructing houses/flats, i.e. changes in the costs of direct/subcontracted labour, plant and materials, overheads and profit attributed to the construction, but excluding the cost of land and other development costs and any development profit.

A range of small, medium and national housebuilders are surveyed each quarter to identify the change in prices paid for constructing a standard house type. Contributors are also asked to provide their expectations for price changes in the following quarter and the mean of these projections is published as a forecast for the current period.

Quarterly growth in housebuilding cost inflation shows 14-year low

Annual housebuilding cost inflation, as measured by the BCIS Private Housing Construction Price Index (PHCPI) continued to cool in 3Q2023, standing at 3.5%, down from a peak of 15.3% in 2Q2022.

On a quarterly basis, this represented a negative growth for the first time since 2Q2009, at -0.3% compared with 2Q2023. This was mainly driven by a decrease in materials costs, as reported by survey respondents.

The continued slowdown of materials cost inflation is also reflected in the BCIS Materials Cost Index, which reported –1.0% annal growth in 3Q2023 – a significant drop from a peak of 23.5% observed in 2Q2022.

Looking to 4Q2023, the housebuilders surveyed said they expected to see a further decrease in costs, an average of -0.3%.

ONS construction output figures clearly demonstrate the continued pressure on the private housing sector. In 3Q2023, private new housing output was down 13.4% on the same quarter a year earlier. There were decreases of 2.8%, 3.4% and 6.0% in quarterly growth in 3Q2023, 2Q2023 and 1Q2023 respectively.

Despite an unprecedented leap in private sector housing starts in the second quarter (up nearly 100% on the previous quarter), attributed to housebuilders bringing forward the start of projects ahead of changing building regulations, starts are expected to fall by 14% overall in 2023.

The impact of increased interest rates continues to show in the housing market. Halifax saw a 0.5% monthly increase in its House Price Index in November, but its Mortgages Director commented that prices are likely to have been strengthened in the short-term by a low supply of homes for sale, rather than being driven up by buyer demand. On an annual basis, the Halifax index was down 1.0% in November.

Nationwide’s House Price Index also showed positive change in November, up by 0.2% on October. On an annual basis, the index was down by 2.0% on the same month last year.

The Office for National Statistics HPI, which published its latest data for September 2023 last month, showed a 0.1% drop in house prices, the first annual fall since April 2012. As the ONS figures cover house sales that may have been agreed months previously, there tends to be a lag in the data.

The Bank of England reported that the value of gross mortgage advances in 3Q2023 was £62.2 billion, up by 18.6% on the previous quarter and the first increase since 3Q2022. Annually, though, it is 27.6% lower than the same period last year.

Although headline (CPI) inflation has continued to ease (4.6% annual growth in October 2023), the Bank of England’s Monetary Policy Committee has kept the base rate at 5.25% since August, with the Governor warning that it will remain at high levels for longer than previously forecast. Prolonged high interest rates will adversely impact housing affordability and continue to heap pressure on housebuilders.

Against a backdrop of a continued downtown in the housing market, BCIS forecasts the remainder of this year and the next to be just as challenging for the private housing sector. BCIS expects new private housing output to contract by 8.3% and 12.1% in 2023 and 2024 respectively, before returning to growth in 2025.

We would like to thank the PHCPI survey respondents for their contribution.

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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Private housing construction price index (PHCPI) survey

If you are a housebuilder or developer, please fill in the survey. If you have any questions or would like to discuss the survey, please call +44 0330 341 1000 or email contactbcis@bcis.co.uk

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