Comments from Kseniya Savelyeva, Indices Manager, Building Cost Information Service (BCIS)
Annual housebuilding cost inflation slowed slightly in the fourth quarter of 2022 to 12.8% but costs were still up 1.7% on the previous quarter.
The annual rate of increase, as measured by the BCIS Private Housing Construction Cost Index (PHPCI) peaked at 15.3% in the second quarter of 2022, the highest since the initiation of the series in 1988.
All respondents to this quarter’s 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. Interestingly, a limited number of respondents reported a decrease in materials costs during the quarter.
Although the overall costs had risen in the fourth quarter of 2022 in comparison to the third quarter of 2022, the construction output in private new housing has declined by 3.2% during the same period.
Cost-of-living crisis, rising interest rates (currently standing at 4.25%), end of the Help to Buy scheme and economic uncertainty are affecting the housing market, with output from the sector forecast to contract by 15.5% in 2023.
BCIS asked the respondents about their response to the uncertainty in the market. Nearly half reported they’re postponing or reducing the build out rates.
Nearly a third reduced selling prices with the remainder equally split between freezing the 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 housebuilding 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 housebuilders in the fourth quarter of 2022 stands at 3.6%.
Nearly 45% of respondents reported Air Source Heat Pumps (ASHP) 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 (MVHR).
The Private Housing Construction Cost Index 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.
