Worried about increasing construction prices?
Over the past few months, we’ve had many inquiries from our members concerned about increasing construction prices. So we asked Hugo Sells from BuildPartner to talk us through the rises they’ve seen through their platform to give us a greater insight into what is happening and what measures home renovators can take to reduce risks for their projects.
Firstly, what increases in construction prices have you seen in recent months?
We’ve seen significant shocks to ALL parts of a construction budget – whether that be labour, materials or margin.
What are these shocks and how do they affect home renovators who are looking to agree prices with a contractor?
So taking material prices first – we’ve seen issues emerge in the global supply and transport which are predomninantly caused by covid, and has affected the UK based supply chain. This has led to an increase in key materials prices by an average of 20-30%.
In terms of labour prices, there has been a reduction in labour supply caused by a combination of covid and Britain leaving the EU. As a result, labour prices have increased by but not dramatically, around 0 – 5%.
The complications with material supplies and labour, have created difficulties for construction companies and reduced companies actual profit margins in the short term. As a reaction against this volatility, overall margins are being increased.
Both due to the increased operating costs but also as a contingency against future price increases, generally around 0 – 10%.
So how much is the price of an average project going to increase by?
Based on a representative project with a standard basket of materials, labour components and margin, the fundamental cost of carrying out a project is likely to increase in price by around 5 – 10%.
On a £150k build, this means an increase of £7.5 – £15k, a significant amount but less than the current sentiment might suggest.
It’s possible that quote increases may be higher than the fundamental increases in price because contractors are increasing their margins further to guard against future volatility. A move which has been somewhat enabled by the higher than usual demand and limited supply. This is harder to calculate but anecdotally has been seen to increase margins by another 10 – 15% and therefore overall 15 – 22%.
What do you think will happen in the future?
This is of course subjective and difficult to predict. However, we have spoken to a range of materials suppliers, contractors and quantity surveyors.
Material prices will continue to be affected by shortages for perhaps another six to twelve months, hopefully reducing in severity over that period.
Labour prices may remain slightly higher, it is difficult to predict how much of the increase is a result of Covid vs leaving the EU.
Margins will reduce relative to the material supply issues over the next six months and also reduce as labour supply normalises.
However, these are the fundamental supply side costs, as mentioned above, psychology and demand have the potential to cause even more dramatic swings. These are harder to predict although, we would expect them to have a similarly reducing effect.
What would be your advice managing costs?
1) If you shop around and miraculously find a cheaper than expected quote, both from main contractors and subcontractors, beware, it is likely to be a mistake or an inexperienced business.
2) Budget additional time and therefore money for lead times on materials. Do not trust the lead times materials suppliers give you, it is not their fault, they cannot say with reasonable certainty what will happen, double it and assume an effect on preliminary costs and overheads as a result.
3) Collaborate and be open with your pricing, you and your builder will have different appetites for risk and finding the right balance will result in the right price.
For example, it might make sense to agree provisional sums for certain materials. A provisional sum which is an estimate of the price, which can be confirmed when the materials are ordered. This way a margin for risk will not need to be added to the quote, but instead, a personal contingency of 10-15% could be set aside which may or may not be needed.
4) If anyone you’re working with is looking unusually stressed, help them, this is a very difficult period for everyone.
5) And of course, use BuildPartner, the process will be significantly easier!
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