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What is happening to the construction costs and what can you do about it?


As ambitious architects, our primary goal at Unagru is to get as much as possible done within the client's budget. In this, as with many other things, our ambition aligns with our clients but sometimes we run the risk of being too optimistic about costs and timeframes.


On the other hand, and especially during the early conversations, the architects must be the voice of reason and in this role, we increasingly have to voice concerns over budgets and brief due to the recent increase in construction costs. Put simply, construction costs have increased by about 35%; the landscape is mixed, the causes are several, and the responses can vary depending on your situation.


With this article, we'd like to help you understand what is going on, how long it might last, and what we should all do to reduce the impact of the increases.


How much have construction costs increased?

The figures vary across regions and sectors, but construction costs have increased somewhere between 35 and 40% in the last two years, based on the most diffused information. The main leading causes can be broken down into three areas.


Firstly, construction materials have become 25% more expensive in the twelve months before October 2021, putting the total increase from 2019 at about 35%. The cost increase is primarily due to the pandemic's effect on supply chains and raw materials. For example, China's strict approach to containing the spread of the virus has disrupted its output; in similar ways, the past disruptions across the world have caused a lag in production that manufacturers are struggling to bridge. As several countries are easing restrictions, thousands of projects that had been put off or slowed down have regained pace and added pressure to the suppliers. A slight reduction in growth in December has eased this pressure temporarily, but the materials shortage is like to carry on for some time. The products worst affected are roof tiles, timber, steel, cement and paint. (Source: HomeBuildingUK)


Lastly, global increases in energy bills, partially related to international political tensions, will cause prices to carry on growing by an additional 5-6% over 2022. (Source: NewCivilEngineer)


Secondly, Brexit has caused a considerable exodus of European workers from the UK. Since the referendum, the Government has estimated a formidable loss of workforce. Fewer builders mean they are in high demand and able to ask for higher wages, plus due to the higher demand the response to tenders tends to be slower.


Earlier this month, Sadiq Khan called on the Government to introduce a temporary visa scheme to tackle widespread labour shortages in the industry after official figures revealed that the number of EU-born builders in London had fallen by 54 per cent in the three years to April 2020. (Source: BuildingDesign & EveningStandard)


Finally, contractors are faced with the only option to increase salaries to keep their workers and spend more to secure materials. They also need to spend more time and money procuring and stocking materials to avoid the risk of running out of critical products during construction. Increased labour and material costs combined with the uncertainty in the future prices: leading contractors to give prices now with an added contingency added to avoid losses, as future products pricing is so uncertain. As Hugo Sells of Buildpartner, a construction cost pricing online platform, summarises: "in the first period, the complications with material supplies and labour have created difficulties for construction companies and reduced actual profit margins in the short term. As a reaction to the overall volatility, overall margins have been increased, both due to the increased operating costs but also as a contingency against future price increases".


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What can homebuyers and architects do to improve the situation?


Think of the bigger picture.


Know that everyone is in the same situation, and the market is slowly adapting. The slowdown in construction through December 2021 has started easing the situation on the supply side, and there might be more adjustments coming to additionally ease the situation.


Speak to people you can trust.

When discussing a new project, make sure to get a complete picture of all the costs you need to factor in. Several contractors and professionals provide partial figures to avoid scaring away potential clients, a good architect will set out for you the full scope of the costs.


Choose the right project.

Prioritise projects on your home with the potential to add square floor space and therefore, tangible value to the property. For example, ground floor and loft extensions increase the property's value significantly and better offset the increase in costs so are a far better return on investment. For example, a typical rear extension will add approximately 15 square metres to a house, with an average value of £8k per square metre, you would be automatically adding £120k. Similar considerations can be done for roof extensions.


Learn to prioritise.

Even within one project, some items are more important and urgent than others. Replacing the existing windows, for example, can often wait one or two years without affecting the main construction programme. As architects, we often suggest prioritising the few elements that make the difference: a good layout, the floor finish, and an efficient plumbing and mechanical system that is futureproofed are the essentials. We believe in using all the tricks in our arsenals to reduce the costs of every other element, including items like a simple Ikea wardrobe as strategic micro-interventions around bedrooms, which can always be upgraded at a later stage if needed.


Invest some time and money in an early cost estimate.

About four weeks in, the main aspects of the project should be pretty established. At this moment we would recommend you investing one day and a few pounds towards an updated cost estimate, as this might save you time and money later down the road. Constantly gauging construction costs will avoid any possible re-design fees and save precious time during the tendering stage.


Take your time to select the builder.

With so much demand, builders may be tempted to raise their prices to accommodate prospective clients' calendars or increase their profits. When tight timeframes constrain you, self-imposed or real deadlines will influence your selection. On the other hand, having factored in some additional time will allow you to choose the right builder for you, no matter what their commitments are. In some cases, you might be able to get a discount because you fit exactly into their work schedule plans. Hugo Sells, CEO of Buildpartner also recommends being wary of quotes that seem too good to be true: "if you shop around and miraculously find a cheaper than expected quote beware, it is likely to be a mistake or an inexperienced builder".


Conclusion.

With higher construction costs, it becomes more important to think carefully and seek advice from the earliest stages of your project (from the imagination stage, to be precise). Before committing your mind to a specific property it might be a good idea to speak to a professional to figure out the main parameters of the project you can afford and that suits you best. Favour properties that can be extended over ones requiring only remodelling to preserve the value of the investments and, ideally, choice a property you can live in for some time to avoid spending money on both your rent and mortgage.



Joinery wall at our project in Streatham.


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We are happy to invite CLPM to share with us their points of view to elaborate on the discussed topic above.

For more readings, please visit https://cl-pm.com/what-is-happening-to-construction-costs/



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