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Material prices continue to rocket

More than half of small building firms say that rising material prices are squeezing their margins and the same percentage have had to pass these price increases onto consumers, according to the latest research by the Federation of Master Builders (FMB).

Small and medium-sized (SME) building firms were asked which materials are in shortest supply and have the longest wait times. The average results were as follows (in order of longest to shortest wait times):

  • Bricks were in shortest supply with the longest reported wait time being more than one year
  • Roof tiles were second with the longest reported wait time being up to six months
  • Insulation was third with the longest reported wait time being up to four months
  • Slate was fourth with the longest reported wait time being up to six months
  • Windows were fifth with the longest reported wait time being more than one year
  • Blocks were sixth with the longest reported wait time being up to four months
  • Porcelain products were seventh with the longest reported wait time being more than one year
  • Plasterboard was eighth with the longest reported wait time being up to two months
  • Timber was ninth with the longest reported wait time being up to two months
  • Boilers were tenth, with the longest reported wait time being more than one year

SME building firms were also asked by what percentage different materials have increased over the past 12 months. On average, the following rises were reported:

  • Insulation increased by 16%
  • Bricks increased by 9%
  • Timber increased by 8%
  • Roof tiles increased by 8%
  • Slate increased by 8%
  • Windows increased by 7%
  • Blocks increased by 7%
  • Plasterboard increased by 7%
  • Boilers increased by 7%
  • Porcelain products increased by 6%

The impact of these material price increases includes:

  • More than half of construction SMEs (56%) have had their margins squeezed, this has gone up from one third (32%) reporting this in July 2017
  • Half of firms (49%) have been forced to pass material price increases onto their clients, making building projects more expensive for consumers, this has gone up from less than one quarter (22%) reporting this in July 2017
  • A third of firms (30%) have recommended that clients use alternative materials or products to those originally specified, this has gone up from one in ten reporting this in July 2017
  • Nearly one fifth (17%) of builders report making losses on their building projects due to material price increases, this has gone up from one in ten reporting this in July 2017

Brian Berry, Chief Executive of the FMB, said “Material prices have rocketed over the past year. The reason for this could include the impact of the depreciation of sterling following the EU referendum still feeding through. High demand due to buoyant international markets could also be contributing to price increases. What’s particularly worrying is that when prices have increased mid-project, almost one fifth of builders have absorbed the increase and therefore made a loss. Also, if material price increases weren’t enough of a headache for building firms, they are also experiencing material shortages with wait times ticking up across a range of materials and products. Worst case scenarios include firms waiting for more than one year for a new order of bricks.”

“The rise in material prices is not just a problem for the country’s construction firms – it is also a problem for home owners. Half of firms have been forced to pass these price increases onto their clients, meaning building projects are becoming more and more expensive. This problem has worsened recently with more than twice as many firms passing material prices on to their clients now compared with nine months ago. What’s more, home owners should be prepared to have to use alternative materials or products to their first choice. One third of firms have recommended that their clients should use alternative materials or products to those originally specified. Now more than ever, it’s important that builders and their clients keep the lines of communication open in order to stay within time and within budget. Specified products or materials may need to be swapped for alternatives or clients will need to accept the additional cost.”

“We are calling on builders merchants to give their customers as much advance warning of forthcoming material prices increases or wait times as possible so that firms can warn their customers and plan ahead. We are also advising builders to price jobs and draft contracts with these material price rises in mind. The FMB’s latest State of Trade Survey shows that almost ninety per cent of building firms are expecting further rises over the next sixth months. This makes quoting for jobs difficult but if builders flag the issue to their client from the outset, and include a note in the contract that prices may be subject to increases, they shouldn’t be left short. What we don’t want is for the number of building firms making losses on projects to increase as this could result in firms going to the wall. A large number of collapsing construction companies will have a terrible knock-on effect in the wider economy.”

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It’s time for the construction industry to consider alternative materials

Built environment experts Arup have released a report entitled ‘The Urban Bio-Loop’ which highlights the need for more diverse material usage within construction. For an industry that specialises in boxes, is it time to think outside of it in terms of how we tackle very real issues such as climate change and overpopulation?

The publication aims to demonstrate that a different paradigm for materials in construction is in fact possible.

Organic waste from our cities and the countryside, traditionally managed through landfill, incineration and composting could be diverted – at least in part – to become a resource for the creation of construction engineering and architecture products before being fed back in the biological cycle at the end of their service life.

The use of organic waste in construction would possibly allow the exploitation of its untapped value with a positive impact not only from an environmental perspective but also from a technical, social and economic standpoint. In this project a number of organic waste streams have been identified, together with their applications in building construction as products. Some of them are already certified products used in some markets at global level. Some others need further research and investment before being ready to market.

In the short term these examples are a guideline for designers and practitioners for replacing some of the traditional architectural products with equivalents made with organic waste as a resource.

The report also explores to which extent both our cities and urban districts could become self-sustaining – at least partially – from a feedstock point of view. This would be through the active implementation of organic waste streams into the supply chain of building construction products. This vision entails on the one side cities and urban districts that could implement more effective recovery systems and processes to turn organic waste into a source of value, while on the other side they can be planned for growing natural construction materials.

The principles of Circular Economy would provide the rationale for a shift form a linear – disposal model – towards a circular value chain where organic waste is the main resource.

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Soaring material prices hampering small building firms

A third of small building firms say that soaring material prices are squeezing their margins and almost a quarter have had to pass these price increases onto consumers, according research by the Federation of Master Builders (FMB).

Construction SMEs have reported a range of material price increases since the depreciation of sterling following the EU referendum in June 2016. Small building firms were asked which materials have increased the most and the results were as follows:

  • Timber
  • Insulation
  • Bricks
  • Blocks
  • Windows
  • Plasterboard / Slate (joint sixth)
  • Boilers and radiators
  • Porcelain products

The impact of these material price increases includes:

  • 85% of builders think material price rises could drive consumers to hire rogue traders in an effort to save money on their building projects
  • One third of construction SMEs (32%) have had their margins squeezed
  • Almost one quarter (22%) have been forced to pass material price increases onto their clients, making projects more expensive for consumers
  • More than one-in-ten builders report making losses on their building projects due to material price increases

Brian Berry, Chief Executive of the FMB, said “Material price increases have left builders under severe pressure. This research shows that following the fall in the exchange rate, timber is the material that the majority of builders say has increased most in price but the problem doesn’t end there – everything from insulation to windows to bricks and blocks are soaring in price. A third of builders report that these price increases are eating into their already razor-thin margins – and this on top of increased wages and salaries stemming from long-term construction skills shortages. Furthermore, one-in-ten builders say that they’ve actually made losses on projects due to material price increases – this is most likely to happen when a particular product or material jumps up in price mid-project when then builder has already quoted for the work. Perhaps unwisely, some builders are absorbing these extra costs as opposed to re-quoting for the project.”

“Material price spikes aren’t just a problem for builders – they’re also a problem for the home owner, with almost one quarter of builders saying that they have had to pass on price increases to their clients. This means that building projects now cost significantly more than they did this time last year. What with stagnant wages and price inflation across the economy, consumers are feeling the pinch and it might be that they decide not to commission that loft conversion or extension after all. Or worse still, 85% of builders believe that home owners will be tempted to hire rogue traders who are quoting a lower price than a professional building firm such as those that belong to the FMB. If that’s the case, material price rises could lead to a flurry of botched jobs and distressed consumers. We’re calling on home owners to hold their nerve – they’re better off commissioning a more modest project from a professional builder than a high spec project from a cowboy. Don’t take the risk.”

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Improved access to material markets needed now to aid building

In a quarter characterised by political uncertainty, the Construction Products Association’s Construction Trade Survey shows that despite a strong Q2 the industry’s supply chain are more pessimistic for the year ahead.

The survey of main contractors, SME builders, civil engineering firms, product manufacturers and specialist contractors found that all reported increases in sales, output and workloads in the quarter driven by increased demand. Notably however, order books were sustained by private housing and R&M work, but fell in sectors such as commercial and industrial. This was echoed throughout the supply chain, with net balances weakening for enquiries, orders and expected sales among SMEs, civil engineering contractors and product manufacturers compared to Q1.

After Sterling’s depreciation since the EU Referendum, the strongest cost pressures for the construction industry have been rising prices for imported materials. On balance, 88% of main contractors, 87% of heavy side manufacturers and all light side manufacturers reported raw materials costs rose in Q2. In spite of this, almost half of main contractors and specialist contractors opted to keep tender prices unchanged, leading to a fall in margins.

Commenting on the survey, Rebecca Larkin, Senior Economist at the CPA, said “This was the 17th consecutive quarter of growth for the construction industry, but a cautious stance over future expectations is not surprising. Another quarter of slow GDP growth, rising costs and a near-term outlook clouded by Brexit uncertainty have led to a fall in orders in privately-financed sectors such as commercial and industrial, and this pessimism has also spilled over into infrastructure.

“Perhaps more conspicuous in the survey data is the squeeze on margins for main contractors and specialist contractors. Strained margins had already been acute for some time given skills shortages pushing up construction wages. Now there’s the added pressure of contractors trying to avoid or delay passing on the full cost of higher raw materials prices to clients when tendering for upcoming construction projects.”

Brian Berry, Chief Executive of the Federation of Master Builders, said “Despite rising material prices and a period of political uncertainty, it is encouraging to see the SME construction sector continuing to grow. The industry is demonstrating significant resilience, especially when we consider difficulties in recruiting key trades such as bricklayers and carpenters, and shortages in other trades, such as plumbers and plasterers. Furthermore, there are real challenges ahead for the sector. The possibility of Brexit exacerbating already severe skills shortages and the continuing upward pressure on wages and salaries this brings, means construction SMEs will be cautious in their optimism”.

Richard Beresford, Chief Executive of the National Federation of Builders said “Although SMEs have found more work, project viability seems to be increasingly stifled by spiralling material costs. Construction SMEs are reporting a tightening of profit margins, which may impact productivity in the coming twelve months. The NFB’s house building members appear more confident about their immediate future, despite not having an assured work pipeline. The Government must enable constructors – particularity SMEs – to establish a pipeline of work either through more streamlined procurement or by reforming the planning process. However, the weakening pound shows that, in the long term, constructors either need improved access to material markets or short-term financing for project completions. The Government must deal with the impact of a weaker exchange rate and Brexit more urgently. It must work with industry to understand and navigate more unpredictable and potentially difficult times.”

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70% of builders report material price hikes, report FMB

70% of UK builders have seen an increase in material prices due to the depreciation of the pound, new research from the Federation of Master Builders (FMB) has revealed.

Sarah McMonagle, Director of External Affairs at the FMB, said “thousands of smaller building firms are grappling with the rising cost of materials caused by the depreciation of sterling since the EU referendum. More than 70% of smaller building firms have experienced increased costs as a result of the weakened currency, with additional increases of 10 to 15% expected as the new year unfolds. Anecdotally, construction SMEs are already reporting an increase of 22% in Spanish slate and 20% increase in timber. A quarter of all materials used by the UK construction industry are imported – this is significant and underlines the vulnerability of the industry to sudden fluctuations in the strength of our currency. The combined pressure of higher material prices and the rising cost of skilled labour represents a serious challenge to builders.”

“What this means is that home owners could start to see the cost of their building projects increase. It also means that consumer choice may be reduced as some home owners face having to compromise on aspects of their project due to the fact that certain materials have become too expensive. There is also an added headache for the builder, as material price rises can come at short notice and if they are mid-project, the original costing is no longer accurate. This makes pricing jobs problematic and leads to construction SMEs having to cover themselves against sudden price swings. Some builders are attempting to mitigate this by introducing larger contingency funds when pricing for a job, or by stipulating in the contract that the overall contract price will change in the case of material price hikes, making client budgeting more tricky.”

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New figures show increased demand for bricks

New statistics released today by the Office of National Statistics (ONS) indicate good news for the building industry.

In the second quarter of 2016, brick deliveries were 10.4% higher than in the first quarter. Brick deliveries in June 2016 are also 7.4% higher than May, the previous month.

These changes are significant and point to the increased demand for bricks in the housing and construction.

The results correlate with recent positive news in the house building industry. 41,222 new homes were built in the UK in Q2, an increase on the same period in 2015 and the highest number of houses built since Q4 of 2007.

Andrew Eagles, CEO of the Brick Development Association (BDA) says “This is encouraging. Manufacturers have geared up supply to meet demand. It is heartening to see an increase in house numbers and increased deliveries of brick to help get those homes built with quality durable materials.

“We welcome the recent House of Lords report pointing to the need for more homes and greater diversity of mechanisms to get more homes built, and hope this leads to more action and further rises in home building.”

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New ONS figures indicate increased uptake of construction materials

The Brick Development Association, the body that represents the clay brick and paver industries in the United Kingdom, has responded to recent comment about the state of the construction industry. The growth in the brick deliveries over the last month follows extensive work manufacturers have undertaken over the last year.

Figures released today from the Office of National Statistics (ONS) and Department for Business Innovation and Skills show that brick deliveries in May increased by 3.1% on the same month the previous year. Additionally, the month on month change shows a 0.6% increase in May 2016, following a 1.5% increase in April 2016 on the same basis.

Andrew Eagles, CEO of the Brick Development Association said “There is currently some uncertainty at central government. All major parties though support a drive to significantly increase home building numbers. Osborne’s move away from austerity and the likely interest rate drop are likely to improve the construction environment.

“It is important to look at statistics. There has been a significant increase in brick production over the last twelve months and this is confirmed by the latest ONS statistics.

“It is heartening to see how quickly and how dramatically the sector has risen to meet demand [and in particular contribute to the much needed rise in housebuilding.”

This recognition only adds to the current emphasis on the need for housing. Housing minister Brandon Lewis has promised to build 1m homes by 2020, to bridge the gap in recent years between houses built and houses required, which should lead to further growth within the brick industry.

“The increase of brick deliveries throughout May is a positive contribution to the revitalisation of the housebuilding sector”, Eagles added. “When the volume of new housebuilding starts to grow closer to the 200,000 a year target the brick industry will satisfy demand.”

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