Private housebuilders battle rising costs

March 23, 2017 / Isla MacFarlane
Private housebuilders battle rising costs

Private housebuilders’ costs rose at over 4% per annum in fourth quarter of 2016 in response to demand pressures on resources, according to RICS.

The BCIS Private Housing Construction Price Index rose 1.5% in Q4 2016; 65% of contributors indicated that costs had increased. Three quarters of contractors who provided reasons for rises identified materials and two thirds identified labour.

“One of the key reasons in the rise of costs for Private House builders is not the shortage of resources but cost of such resources rising due to exchange rates,” said James Trescothick, Chief Global Strategist, EasyMarkets. “For example, the majority of materials needed to create bricks is imported from the EU, so with the GBP falling dramatically against the Euro since Brexit vote has made it a lot more expensive to buy such materials.

“Future wise, we are entering unknown territory as with Article 50 set to be triggered on 29th March, no one knows how divorce proceedings with pan out between the UK and the EU so no one will know for sure how the currency market will react.”

Cost pressures specifically mentioned by individual contractors were:

  • Bricks and blocks;
  • The impact of exchange rates on imported prices;
  • Appliances;
  • Cavity insulation;
  • Roof tilers;
  • Scaffolders.

“The supply and cost of imports and materials have significantly increased with the devaluation of the pound in the aftermath of the Referendum result,” said Andrew Brooks, Managing Director of Bewley Homes. “Whilst the Government will be working hard to reach favourable trade deals with countries outside the Eurozone, it is important costs are kept low and quality is not compromised.

“Over the last five years, labour costs have increased considerably and the industry as a whole is in the grip of one of the worst skills crises we have seen for almost 20 years. Large infrastructure projects, such as HS2 and the building industry within London, rely heavily on an overseas workforce – indeed it is believed that over 50% come from countries within the EU. Should these numbers fall significantly, there will be wider implications for the entire industry as skilled labour forces will be taken away from smaller projects to fulfil the obligations of larger ones.

“This in turn is likely to lead to a dramatic reduction in the uptake in skill base and an overall slowdown within the industry which will exacerbate the already dire shortage of housebuilding within the UK.”

According to EasyMarkets, one way to intervene would be for the Bank of England to raise interest rates – a double edged sword. “Raising interest rates could indeed strengthen the GBP against the euro which in return will make importing the necessary materials from the EU cheaper,” said Trescothick. “However, higher interest rates would of course make borrowing more expensive resulting in higher mortgage rates.”

To tackle the labour crisis, Bewley Homes has called on the government and industry to consider ways to attract more talent into the construction industry. “There has been years of successive governments actively encouraging school leavers to go into university and there has been a rapid increase in non-vocational degrees in order to accommodate what is now seen as a rite of passage for a school leaver,” said Brooks. “This has resulted in a dramatic reduction in the skill based courses at local colleges.

“However, the construction industry remains a great alternative and opportunity for a career – this can clearly be seen by so many successful sub-contractors being set up by entrepreneurial people who started their careers on the tools.”

According to Scape Group, the costs of imported materials from the EU are likely to rise a further 10% after Article 50 is triggered. An earlier analysis by RICS estimated that the industry also faces losing 8% of its workforce.

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