Developers brace for spiralling build costs
Developers are bracing for further hikes in build costs threatening the supply of new homes, following record rises last year.
Some 92% of housebuilders say they expect costs to rise, with 25% predicting significant increases, according to Knight Frank’s survey of 50 volume and SME builders.
Supply chain issues and rising material costs at the end of 2021 were the biggest pressure on developer bottom lines for some 56% of companies. In contrast, preparation to deliver net zero homes by 2025 was the biggest challenge for just 8% and 0% pointed to cladding remediation.
Developers are bracing for further hikes in build costs threatening the supply of new homes, following record rises last year.
Some 92% of housebuilders say they expect costs to rise, with 25% predicting significant increases, according to Knight Frank’s survey of 50 volume and SME builders.
Supply chain issues and rising material costs at the end of 2021 were the biggest pressure on developer bottom lines for some 56% of companies. In contrast, preparation to deliver net zero homes by 2025 was the biggest challenge for just 8% and 0% pointed to cladding remediation.
Government data shows that the cost of construction materials – a category including steel, timber and concrete – increased by 23% last year, roughly equal to the rise seen across the previous 12 years combined.
Last week, London mayor Sadiq Khan announced that a cocktail of surging costs and workforce shortages meant housebuilding in the capital was at risk of stalling. He said a combination of Brexit and Covid-19 were to blame – a sentiment echoed by the industry. According to Knight Frank, 65% of builders attribute the rise to materials inflation, with 15% saying it was down to Brexit and 8% labour challenges.
“This will undoubtedly have a knock-on effect on house prices,” said Justin Gaze, head of residential land at Knight Frank. “Housebuilders will look to offset any increase in build costs by increasing prices in a market which continues to be constrained by lack of supply.”
Going into 2022, housebuilders said their biggest challenges were supply chain issues and planning reform and policy, jointly for 17% of respondents, followed by availability of land at 16.6%.
Knight Frank said land prices held steady in the fourth quarter of the year, as house price inflation continued to offset a rise in build costs. However, house price growth is expected to moderate this year and mortgage rates are set to rise, putting more pressure on housebuilders’ margins.
Anna Ward, senior research analyst at Knight Frank, said: “Some previously London-focused housebuilders are now competing more intensely outside the capital to secure housing sites to build out their pipelines, and in some cases are lowering margins to secure these sites.”
To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews
Photo by Joffi/Pixabay
