Is the rising cost of materials the ultimate straw for the construction industry?
The price of building materials has increased by 20% compared to last year. Considering all the other difficulties for the industry, will this be the final straw for the government’s ‘Build Back Better’ plan?
Construction industry in a broader economic context
The construction industry accounts for 6% of the UK’s economic output and is valued at 7 117 billion. Construction projects are an important component of our overall economic recovery. Andrew Goodwin, chief UK economist at Oxford Economics, told The Independent: “If people stop building because they know they will face delays, it will start to have a real impact on the wider economy.”
People will not be interested in spending their lockdown savings on a construction that is going to be severely delayed and the overall confidence of the industry will be damaged.
Problems faced by the construction sector?
If you are doing construction work, this all sounds very familiar. The following ingredients are included in this disaster recipe:
- Lack of qualified manpower
- Global supply problems
- Red tape due to leaving the European Union
- Delay in UK delivery
- Increase in the price of materials
This combination of problems is hammering into construction projects, especially when it comes to meeting project deadlines. The inevitable impact on materials and transportation costs is disappointingly predictable.
Is the government helping to solve these problems?
In each of these problems there are different levels and different ways in which the government can support the industry. But it hasn’t been forthcoming, so far.
For example, logistical nightmares are a common lack of lorry drivers since partial Brexit. The other component, however, is the hindrance to global shipping, caused by the effects of COVID-19. Despite repeated requests, HGV drivers are not on the government’s list of deficit occupations.
Another example is the lack of skilled construction workers, again due to the UK’s reaction to leaving the EU. The government’s new immigration system is not helping to address this serious lack of skills. Like the UK, many of our European construction partners are self-employed. And, as a professor of economics at King’s College, Jonathan Portes explains: But there is no provision for self-employed. ” So the problem remains.
The biggest losers are small construction companies
About 90% of the construction industry consists of small companies. And they are being hit the hardest by the current problems. Take the most recent increase in material costs as an example. Larger companies can save money by hoarding assets (an option not available to smaller companies).
Since you can’t build without the necessary materials, many of their projects are being hampered, delayed or completely stuck. A recent survey conducted by the Federation of Master Builders shows this level. They found that 98% of small building companies are seeing prices rise and expect this to continue for the rest of the autumn. Businesses rely on the understanding of their clients when their work cannot be done within agreed timeframes. Leads to frustration everywhere.
Larger companies can do better in storm weather, but they are also experiencing the negative effects of all these existing problems at the same time. For example, in their AGM memo, the Berkeley Group states:
“While the sales market has been resilient, the operating environment remains challenging. As reported in the broader market, and in line with our year-end results update, we have experienced inflationary pressures on build costs during this period, mainly through materials, and we have supply chain and We are aware of the ongoing problems in the labor market since Brexit and the epidemic. “
Regardless of the size of your business, any help from the government would be welcome to ease any of these serious issues. During this time, we can help with other things like your CIS tax return and your tool tax rebate. Just drop us an email, or give us a call and we’ll keep track of that direction together.
Director of Operations