Construction Costs Set to Skyrocket

UK housebuilders could face paying the hefty extra sum of £3.2bn per year as new-build construction costs are set to skyrocket. 

The average cost of construction for a new-build property is set to rise almost £18,000 per unit, research from property debt adviser Sirius Property Finance has revealed. 

Construction costs across the industry could total close to £35bn, as the cost of materials and labour spiralling.

Soaring energy costs are also expected to make an impact on developers’ profits in the year to come, as firms battle with hiked wholesale prices.

Overall build costs are to rise 10.2 per cent annually, with a rise driven by materials (up 18.7 per cent), as well as a modest rise in labour costs (2.5 per cent).

This means the average construction cost of a new-build home will to increase to £192,237, up from a current average of £174,444 per property.

The lift would represent a £17,793 dent to current profit margins.

The year ahead would see an acceleration of soaring costs for the sector, according to head of corporate partnerships at Sirius Property Finance, Kimberley Gates.

Prices for materials, including steel, timber, and concrete, shot up 23 per cent last year, according to government figures.

Gates said: “A shortage of labour and the increasing cost of materials has been an issue for UK housebuilders for quite some time now and it certainly hasn’t helped when negotiating the problematic pandemic landscape of the last two years.”

“Unfortunately, the year ahead looks like it will bring more of the same,” she said.

Earlier this month, the Mayor of London warned that increasing construction materials was slowing house-building progress in London.

Sadiq Khan said new-build developments and extension projects were being hit by a cocktail of rising costs thanks to Brexit and the pandemic.

One development in south east London has experienced costs rising 45 per cent based on tender returns, Khan said.

A south London borough saw cost inflation leap 17 per cent while one in the north east said it had seen average cost increases across the board of around 10 per cent.

Another set of research by Sirius found that the current cost of construction accounts for 47 per cent of a new-build, with an average asking price of £370,727. A 10.2 per cent rise in costs would see this proportion rise to 52 per cent of asking price.

Source: City AM