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Inflation, material costs and rising fuel prices are putting real pressure on Britain’s housebuilders

This month, contractors face the prospect of having to reduce carbon emissions in their new build homes by 31% (not 30% as has been reported in some quarters).

This is being done via a squeeze on Part L and Part F of the Building Regs, alongside the introduction of the new Part O on overheating.

This is all towards the 2025 Future Homes Standard, a laudable but demanding milestone on the way towards the UK’s net zero emissions target in 2050.

However, perhaps unusually, the housebuilding sector now sits in a vulnerable position, having to meet these new legal targets, while its upfront costs go through the roof.

Margins will only take so much hammering before they start to eat into core finances

James Parker James Parker Editor of Housebuilder & Developer

40-year high

Inflation is currently at a 40-year high, and construction materials are one of the most badly-hit areas, with estimates earlier this year putting the price rises facing housebuilders at around an extra £3.2bn.

BEIS reported that in February, the cost of steel rebar in concrete had increased year on year by 44%.

Fabricated structural steel had gone up by 36% in the same period, and particle board by 45%.

Imported plywood had seen a 29% rise, and precast was up 26%.

Early, open collaboration across the supply chain, plus creative thinking, can only go so far in mitigating such rapid rises.

Fuel costs

Fuel is seeing exponential price rises to reach record highs.

This hits many businesses, particularly those delivering to sites, and will add further costs to supplies in coming months.

We are also attempting to build new homes which will be 75-80% lower in terms of carbon by 2025, when the Future Homes Standard is fully implemented.

According to a 2021 Industry Viewfinder research study we undertook of our readers, 22% weren’t even aware of the Standard.

The energy price crisis, which is hitting homeowners in the pocket this year, exacerbated by war in Ukraine, ought to be the ideal ‘stick’ to force the adoption of broad climate-friendly building solutions in new builds and retrofits.

However, at the same time the uplifts in ‘on-costs’ for housebuilders in so many areas means that putting their resources behind the fabric improvements to provide a sure footing for low carbon homes is further compromised, just when it’s most needed.

Something must give

For a time, contractors will attempt to absorb these price rises, to avoid angering their customers, and their supply chain, however eventually something must give, and they will be asking their suppliers more favourable terms, and asking customers already facing huge challenges to pay more for homes.

The demand may still be flying, but the ability to find the funds may start to dry up for many.

Consumer confidence is waning, with house prices recently showing a slight dip in their overall inexorable rise, as homebuyers look to food and heating bills as priorities, rather than moving up the property ladder as they might have 20 years ago.

The Bank of England is slowly creeping interest rates up to try and curb inflation, but this just makes life harder when people are trying to balance their finances.

At some point, this is going to start to hit even the most prosperous major housebuilders.

Losing out

Again, suppliers will do what they can to help their builder customers, but margins will only take so much hammering before they start to eat into core finances.

Being on the major housebuilders’ supply chains is likely to be their priority, meaning SMEs (with 16% of all UK SMEs in construction), likely to be the first to lose out.

According to the Federation of Master Builders, a third of SME housebuilders have already had to pass on price rises to their customers.

For now, we can forget the rumoured 340,000 homes a year target, and keep focused on the 300,000 a year as still a distant ambition.

Michael Gove has recently even sprinkled doubt as to whether that is a firm commitment for the Government.

Avoiding the deluge

One thing the Government is increasingly proactive on is ensuring that new developments are bringing in proper, sustainable solutions for managing surface water as flooding increases.

This is yet another area that housebuilders will need to find the resources to put into, whether it’s natural or ‘engineered’ SuDS solutions, or a mix of both.

However, as the buyer demographic shifts further to wanting homes that impact far less on the environment, the payback for investment must be demonstrable over time.

Our recent ‘Building Insights’ unpacks the benefits of SuDS for housebuilders, featuring a renowned expert, landscape architect Sue Illman.

She talks engagingly on the increasing momentum from the centre, in support of knowledge on the ground to tackle the current and future risks.

I recommend you give her illuminating comments a listen

James Parker is editor of Housebuilder & Developer