Housebuilders face cost uncertainty

The BCIS Private Housing Construction Price Index (PHCPI) indicates housebuilders costs rose 0.4% in 3Q2020 and by 2.3% when compared to the same quarter a year earlier.

After an unprecedented decline in 2Q2020, reflecting the spring COVID-19 restrictions, construction output rose by a record of 84.4% on previous quarter but remains down by 13.2% on the annual basis.

Nearly two thirds of the respondents to Q32020 PHCPI survey reported a change in costs:

• 5% stated material cost had increased, while 12.5% indicated they had decreased
• 5% of respondents reported increases in labour, while 12.5% indicated the cost of labour had decreased

Significant price increases have been reported for timber, timber products and insulation. Further material cost increases for timber, insulation, bricks, blocks and plasterboard are expected by respondents in the coming months.

The COVID-19 pandemic continues to affect the construction industry as well as both the domestic and global economy. The main factors impacting business operations in the third quarter were identified to be:

• material availability and reduced productivity (33% of respondents)
• labour availability, delay in sales and supply chain (11% of respondents) were

On site productivity has been improving, depending on size of the projects and type of works. Respondents to the survey have emphasised that on average, productivity in August and September compared with the levels pre-COVID-19 lockdown, stood at 88% and 90% respectively, compared to 75% in July. When asked about productivity once revised working practices are established, respondents expect productivity to range between 70% and 110%, at an average of 91% (as a % of pre-COVID-19).

Continued COVID-19 disruption, Brexit and wider economic uncertainty, material and labour availability and maintaining a safe working environment were the main challenges going forward into 2021. In addition, several responses noted uncertainty in the housing market and changes to the Stamp Duty and Help to Buy scheme to be an important challenge next year.

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.

The BCIS PHCPI is published in BCIS CapX.