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Housebuilding Cost Inflation Slows Further

ANNUAL housebuilding cost inflation continued to cool in Q1 2024, standing at 0.7%, down from a peak of 15.3% in Q2 2022.

The findings, by the Building Cost Information Service (BCIS) Private Housing Construction Price Index (PHCPI), show this represented a 0.3% increase compared with Q4 2023.

The BCIS Private Housing Construction Price Index is a measure of the prices paid by housebuilders for constructing houses and flats. It includes changes in the costs of direct and subcontracted labour, plant and materials, overheads and profit attributed to the construction. Additionally, it excludes the cost of land and other development costs and any development profit.

A range of small, medium and national housebuilders are surveyed each quarter to identify the change in prices paid for constructing a standard house type. Contributors are also asked to provide their expectations for price changes in the following quarter. The mean of these projections is published as a forecast for the current period.

Housebuilding Cost Inflation

Karl Horton, BCIS Chief Data Officer 

BCIS Chief Data Officer Karl Horton said: “Among the comments from respondents was the suggestion that while the costs and supply of materials are relatively stable, the planning process and getting approvals remains one of the largest obstacles.

“Both Labour and the Conservatives have pledged to address housing shortages through planning reforms.

“Although headline inflation has eased, with the Bank of England’s base rate held at 5.25% and household budgets still stretched, residential output is likely to be impacted for some time.”

Material Costs

In Q1 2024, 43% of respondents pointed to an increase in materials’ costs being behind the overall increase. A total of 29% said they had experienced increased labour costs and 14% reported both materials and labour costs rising.

A small minority, 5%, reported a decrease in materials costs. A further 5% said they had experienced lower labour costs. An increase in subcontractors’ costs was also reported by 5%.

The BCIS Materials Cost Index showed an increase of 0.3% in the first quarter of 2024, following two quarters of declining growth. The BCIS Labour Cost Index saw 1.5% quarterly growth in Q1 2024.

Looking to Q2 2024, the housebuilders surveyed said they expected to see another slight increase in costs, an average of 0.3%.

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