House building cost inflation eases as build out rates fall

The annual rate of increase, as measured by the BCIS Private Housing Construction Cost Index, now looks to have peaked at 15.3% in the second quarter of 2022.

All respondents to the latest survey cited increased costs, with 44% reporting increased subcontractors’ costs, 28% reporting increases in costs of both materials and labour, and 24% citing increases in materials costs only.

While a limited number of those surveyed reported the first signs of a decrease in materials costs during the last quarter of 2022.

The cost-of-living crisis, rising interest rates, end of the Help to Buy scheme and economic uncertainty are impacting the housing market, with output forecast to contract by 15.5% this year.

BCIS asked house builders about their response to the uncertainty in the market. Nearly half reported they’re postponing or reducing build out rates.

Nearly a third reduced selling prices with the remainder equally split between freezing recruitment, offering additional incentives or not taking any further action.

When asked about their expectations for the next quarter, the survey respondents said they expected house building costs to grow by an average of 1.4%.

BCIS continues to monitor the readiness of the industry to meet the requirements of the new Building Regulations.

The estimated cost uplift for meeting Part L Building Regulations as reported by house builders in the fourth quarter of 2022 stands at 3.6%.

Nearly 45% of respondents reported air source heat pumps as a chosen solution to meet requirements of the Part L Building Regulations, whereas 30% selected gas boilers and PV. The remaining respondents reported selecting a combination of these.

A limited number of respondents specified their selected choice as gas boilers and PV combined with the extra wall and floor insulation and mechanical ventilation with heat recovery.

The Private Housing Construction Cost Index is based on house builders’ 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.