Rising Material Prices : What does the future hold for project costs?
13th January 2022
Rising Material Prices and the Future:
Construction materials costs in the UK continue to escalate, reaching a 40 year high according to the BCIS.
Increased global demand in the construction sector, combined with the multiple and complex impacts of the pandemic and logistic issues, have resulted in unprecedented shortages, delays and ultimately, increased prices of materials and labour across the economy. So what are the key issues at play?
- Demand: The effect here is from a combination of a simultaneous global increase in demand for products such as steel and timber and a change in patterns of domestic consumption. The big price rises for timber in the UK can be attributed to a post-covid leap in the construction of traditional homes as well as the DIY boom. With many people continuing to work from home reassessing their housing needs. A booming domestic housing market, substantially increased demand with households investing in repair and refurbishments as well as extensions and garden projects.
- Supply disruption: Supply is always going to be tight in a rising market. Unfortunately, key materials are suffering from production difficulties as a result of the covid-19 disruption
- Raw materials: Raw material costs have also been a big factor in the inflationary trend. Energy costs, which fell sharply in 2020, have been bouncing back, and a 70% rise in wholesale gas prices has contributed to upcoming price rises for bricks. The recent fuel shortage has also seen prices increase, increasing the cost of transport and plant costs.
- Bottlenecks: Delays on ships and in ports, shortages of packaging and a crisis in logistics with a lack of HGV drivers and delivery drivers are all contributing to problems getting materials to where they are needed. Paying a premium cost to ensure on-time delivery is increasingly common.
- Margins and risk allowances: Like all businesses, main contractors and their supply chains are all aiming to increase their margins. Markets have been quite competitive over the past two to three years as a result of Brexit and covid-19.
Which Materials are affected?
- Timber: With increasing reliance on imports to fulfil domestic timber demand and some timber-producing countries implementing log export bans, timber supply remains under pressure throughout the UK. In the twelve months to September 2021 imported sawn or planed wood increased in price 73.3% and particle boards by 65.4%.
- Steel: Steel for Reinforcement showed annual increases of 79.4%. British Steel stopped taking orders on structural steel sections in May due to “extreme demand,” before adding a temporary £30 per tonne surcharge on the cost of structural steel, due to a rising energy cost, will continue to escalate costs for steel.
- Bricks – Brick deliveries across the UK are reportedly subject to extensive delays, with major manufacturers warning of significant price rises for pre-order due to extreme market volatility. HGV shortages and the sharp rises in wholesale energy prices means the situation for brick, block and ceramics is unlikely to improve in the near term. This will have big impacts on the residential sector.
It’s fair to say that there have been shortages across the board effecting all materials, not just those above.
To put this into context the cost of materials in constructing a 3-bedroom semi-detached house has increased by 14% or approximately £7,300 between January and September 2021. It is expected to grow by further 1% or £600 by the end of this year
What does this mean for the future?
This is the question we get asked most frequently of late. Well, according to the BCIS, Tender prices are expected to rise steeply over the next year with sharp rises in materials costs and site labour rates, together with strong demand. Tender prices will continue to rise as much as 27% through to the end of 2026
Materials prices rose by 6.3% in 3rd quarter 2021 on a quarterly basis and by 16.9% compared with a year earlier. The materials supply difficulties are expected to stabilise by the autumn of 2022 Labour shortages will also continue to affect prices.
With no signs of the market slowing down having the right team with you from the outset is more important than ever. From identifying design clashes to selecting materials and managing potential uplift in costs our Project Managers, Quantity and Building Surveyors are here to help guide you in these turbulent times making your budget stretch just a little further. So whether you are in the planning stages or on site call us to find out what we do to keep projects on track and stop budgets spiralling.