A report by the Building Cost Information Service (BCIS) forecasts a 15% rise in building costs over the next five years.
- Tender prices are expected to surge by 20% within the same period, outpacing cost inflation by late 2024.
- Labour costs remain a critical factor, with potential increases due to skills shortages despite a predicted slowdown.
- The construction industry’s new work output is projected to grow by 24% over the forecast timeframe.
- The recent administration of ISG highlights ongoing concerns about subcontractor insolvencies and cashflow impacts.
The Building Cost Information Service (BCIS) has released a forecast indicating that building costs are set to rise by 15% over the next five years. This significant increase is attributed to a variety of factors, with labour costs being a predominant driver. As the demand for skilled workers continues to exceed supply, the pressure on wages could further inflate overall construction costs.
In tandem with rising building costs, tender prices are projected to escalate by 20% in the same timeframe. This trend suggests that tender prices will grow at a rate surpassing cost inflation by the final quarter of 2024. Such a development may pose challenges for project budgeting and financial planning within the sector.
Labour costs, which have been a primary contributor to rising building expenses, are expected to experience a deceleration, with a 16% rise predicted from the third quarter of this year to the third quarter of 2029. However, according to Dr. David Crosthwaite, BCIS’s chief economist, the risk remains that wages could be driven upwards by the persistent skills shortages, threatening project feasibility and affordability. “The workforce is 88% of what it was before the pandemic, when there were already long-standing concerns about fulfilling skill requirements,” Dr. Crosthwaite noted.
The announcement by the government to construct 1.5 million homes by 2030 further compounds the demand for skilled labour. Skills England, a newly formed quango, has highlighted the challenges faced by the construction industry in meeting current demands. It suggests that the expansion of modern construction methods could provide some relief to the burgeoning demand.
In addition to these economic pressures, the sector faces potential disruptions from supply chain instability, particularly following the administration of ISG. Dr. Crosthwaite commented on the broader implications, saying, “Insolvencies in the supply chain represent an ongoing source of concern for the sector, in terms of both capacity and impact on cashflow.” The administration of ISG serves as a stark reminder of the vulnerabilities inherent in the supply chain, where subcontractors and suppliers are often left unpaid, risking further business failures.
The construction sector finds itself at a crossroads, facing both significant challenges and substantial growth prospects.
