The cost of building in the UK is expected to rise significantly in the coming years. According to the latest forecast from the Building Cost Information Service (BCIS), overall building costs are predicted to increase by about 15 per cent over the next five years.
Tender prices, which reflect what clients pay contractors to build, are also forecast to rise by around 16 per cent in the same period. This means that planning and budgeting for construction projects will become more expensive for everyone involved.
These cost increases do not happen in isolation. They are driven by broader pressures such as persistent inflation, wage rises for skilled workers and rising prices for materials.
While labour costs remain a major component of total project expense, materials such as timber, steel and insulation are also rising in price, even if their increases have sometimes been less dramatic than labour.
How Prices Have a Knock-On Effect on Tenants and Landlords
Because construction and renovation become more expensive, landlords often face higher costs when maintaining or upgrading properties. Material prices rising faster than general inflation puts extra pressure on landlords’ budgets.
Many choose, or feel forced, to pass these costs on to tenants in the form of higher rent. This can make renting less affordable at a time when many households are already feeling cost-of-living pressures.
Higher building costs also influence landlords’ decisions about improvements. If renovating a property becomes significantly more expensive, some landlords may delay or cancel planned upgrades. This can affect the quality of housing stock over time, particularly in older buildings where ongoing maintenance is crucial.
Could This Lead To Fewer Homes and Slower Renovations?
Rising costs do not just affect existing buildings. They also play a role in house building. When material and labour costs rise faster than inflation, it can limit the number of new homes that developers are willing or able to build. Developers must balance the cost of construction with the price they believe the market will bear. If costs get too high, projects may be postponed or abandoned altogether.
This has a broader effect on housing supply. Fewer new homes being built adds to the long-standing shortage of housing in the UK. It also increases competition for existing homes, which can push prices up further.
How The Financial Markets Adjust
Finance companies and lenders are also responding to these cost pressures. When building costs are expected to rise, lenders may adjust their terms to reflect the increased risk when it comes to refurbishment finance. This could mean higher interest rates, stricter lending criteria or changes in how much funding is available for building and renovation.
These adjustments affect homeowners, buy-to-let investors, and developers alike. They may find it harder to secure favourable finance for projects, and the overall pace of construction and renovation can slow as a result.
Potential Boom Before Prices Rise?
If developers and budding homeowners are looking at making renovations or new developments, they may anticipate the increase in material prices and start immediately rather than waiting for prices to increase.
This may lead to a short-term boom. However, this will need to marry up with other economic policies and factors including interest rates continuing to fall, confidence in the current governments, any decreases in stamp duty and confident lending by British banks.
