Building Materials Costs & Recent Developments in 2024

Executive Summary & Recent Developments:

The construction industry has faced a tumultuous period from 2022 to 2024, with building materials costs experiencing significant fluctuations. In recent developments, government figures indicate a continuing decline in material prices. The construction material price index for all construction work fell by 1.8% in September 2023 compared to the previous year, following a 2.3% decrease in August. However, critical shortages in key materials like bricks and concrete blocks persist, causing project delays and contributing to a decline in industry output.

A notable recent development affecting the industry is the ongoing attacks on vessels in the Red Sea by the Houthis, a rebel group backed by Iran. These attacks have disrupted trade routes through the Suez Canal, significantly impacting the availability of materials and contributing to price volatility. For example, timber-related products and PIR (polyisocyanurate) insulation boards have experienced price spikes due to disrupted chemical deliveries. Despite these challenges, the industry remains cautiously optimistic, recognizing its vital role in the UK economy and striving to adapt to ongoing economic pressures.

Building Materials costs: There has been a significant 38% increase in the price of building materials since 2020. The latest data from the Department for Business and Trade shows a 0.4% rise in the building material price index in March 2024, marking the second consecutive monthly rise in building materials prices. This increase has had a substantial impact on construction costs, affecting everything from new housing materials to repair and maintenance materials.

Supply Chain Issues: The rise in material costs is also driven by ongoing supply chain issues. Shortages of materials like bricks and concrete blocks have led to delays and increased project costs. The construction industry is particularly susceptible to changes in commodity prices, and any disruption can lead to price volatility and increased costs.

Raw Materials: The shortage of raw materials has been a critical factor in driving up prices. Materials such as steel, timber, and insulation have seen significant price increases, which have impacted the overall cost of construction projects.

Price Volatility: The construction industry continues to face price volatility due to various factors, including geopolitical tensions, economic conditions, and supply chain disruptions. This volatility makes it challenging for construction companies to accurately forecast costs and manage budgets effectively.

Alternative Materials: To combat rising costs, some construction companies are turning to alternative materials. These materials can offer cost savings and help mitigate the impact of shortages and price increases in traditional materials.

 

Table of Contents

• 2022 Overview
• Historical Context
• Drivers of Cost Increases
• Industry Impact
• Impact of the COVID-19 Pandemic on Building Materials Costs
• Economic and Geopolitical Influences
• 2023 Overview
• Industry Sentiment
• 2024 Current Details
• Analysis and Insights
• Strategies for Managing Costs
• Labour Market Challenges and Skills Shortages

 

2022 Overview

 

Skyrocketing Costs and Supply Chain Disruptions

The increasing cost of construction materials plagued the industry throughout 2021 and 2022. According to the Office of National Statistics (ONS), the cost of UK construction materials in July 2022 was 24% higher than a year earlier, following a similar level of inflation in the previous year. Overall, the cost of construction materials was over 46% higher in July 2022 than pre-pandemic levels in January 2020.

Energy-intensive construction product manufacturers faced additional challenges as they transitioned to new, higher energy contracts, with some still completing older contracts. The fastest price rises in the 12 months leading up to July 2022 were seen in aggregates (63%), concrete reinforcing bars (38%), insulation (30%), and doors and windows (25%).

Historical Context

The construction industry has experienced 24 months of hyper-construction inflation, unlike any previous period. Data collected since World War 2 shows that the cost of raw construction materials like steel and lumber usually fluctuates within a 0-20% price deviation per decade. However, from January 2020 to July 2022, steel prices rose by 123% and lumber by 111%, reflecting a drastic deviation from historical trends.

Drivers of Cost Increases

Several factors contributed to the rising costs of construction materials:

• COVID-19 Pandemic: Disrupted supply chains and caused supply chain bottlenecks due to short-term demand spikes.
• War in Ukraine: Led to a rise in fuel and energy costs and reduced the supply of key materials like steel.
• Brexit: Introduced tariffs and labor shortages, particularly affecting logistics and shipping costs.
• Energy Costs: Increased significantly, especially for energy-intensive materials.

Industry Impact

The rising costs resulted in project delays, reduced profit margins, and shifts in procurement strategies. Contractors adopted a “buy now, buy early” approach to mitigate future price hikes, inadvertently exacerbating the supply shortage.

Impact of the COVID-19 Pandemic on Building Materials Costs

The COVID-19 pandemic has been a major driver in the fluctuations of building materials costs. The pandemic-induced supply chain disruption caused bottlenecks and short-term demand spikes, significantly affecting the construction sector. Materials such as lumber, steel, and ready-mixed concrete saw unprecedented price hikes. The construction industry had to adapt quickly to these changes, which resulted in increased costs for infrastructure projects and housing output.

Economic and Geopolitical Influences

• Red Sea Vessel Attacks: Ongoing attacks on vessels in the Red Sea by the Houthis, a rebel group backed by Iran, disrupted trade routes through the Suez Canal, affecting the availability and price trends of building materials.
• War in Ukraine: Ukraine’s significant role as a steel supplier to Europe was disrupted, causing a sharp increase in structural steel prices and affecting the overall construction sector.
• Brexit: The departure from the European Union increased tariffs and created labor shortages, further complicating logistics for the construction market.
• Energy Costs: The increased energy prices impacted the production and transportation of materials, adding to the overall rise in prices.

 

2023 Overview

 

Mixed Trends and Critical Shortages

In 2023, the construction industry saw a mix of cost reductions and persistent shortages. The Department for Business and Trade reported a 1.8% decrease in the material-price index for all construction work in September 2023 compared to the previous year. However, specific materials continued to experience significant price volatility:

• Increases: Metal doors and windows (19.0%), screws (14.8%), and ready-mixed concrete (14.4%).
• Decreases: Concrete reinforcing bars (-29.0%), fabricated structural steel (-28.4%), and imported sawn or planed wood (-16.7%).

Despite these price adjustments, the industry faced critical shortages, particularly in bricks and concrete blocks, leading to project delays and a decline in industry output. Factors contributing to these conditions included:

• Energy Costs: Continued to impact production costs.
• Labour Market: The tightest in years, with significant shortages of skilled workers.
• Economic Conditions: High inflation and rising interest rates affected demand and investment.

Industry Sentiment

Despite the challenges, there was cautious optimism within the industry. Builders reported increased consumer confidence and anticipated a recovery in the latter part of the year, driven by potential declines in the Bank Rate.

 

2024 Current Details

 

Recent Developments and Price Adjustments

In 2024, the construction industry experienced further adjustments in material costs. The latest statistics show:

• Price Decreases: Overall construction material prices fell by 2.3% in the 12 months to March 2024.
• Key Increases: Flexible pipes and fittings (20.6%), metal doors and windows (17.4%), and ready-mixed concrete (12.4%).
• Key Decreases: Fabricated structural steel (-19.5%), concrete reinforcing bars (-18.7%), and gravel, sand, clays, and kaolin (-14.0%).

Geopolitical and Economic Influences

Geopolitical tensions and economic pressures have played a significant role in shaping the construction material market. Key factors include:

• Red Sea Vessel Attacks: Ongoing attacks on vessels in the Red Sea by the Houthis, a rebel group backed by Iran, have disrupted trade routes through the Suez Canal. This has particularly affected the availability of materials and contributed to price volatility. For instance, timber-related products and PIR (polyisocyanurate) insulation boards have seen price spikes due to disrupted chemical deliveries.
• War in Ukraine: Ukraine, a major supplier of steel, has seen its mills shut down, leading to a significant reduction in the supply of steel slabs, which has driven up prices across Europe. The conflict has also escalated energy costs, further impacting the production and transportation of construction materials.
• Brexit: The UK’s departure from the EU has introduced tariffs and complicated the logistics of material imports. The lack of a tariff-free agreement similar to that between the EU and the US has placed UK construction firms at a disadvantage, increasing costs for imported materials.
• Economic Conditions: The weakening of the Sterling against the US Dollar has reduced the purchasing power of UK companies, making imported materials more expensive. Additionally, high inflation and rising interest rates have dampened demand, while labor shortages have driven up wages, adding further strain to the industry.

 

Analysis and Insights

 

Key Factors Driving Changes

The fluctuations in material costs over the past three years can be attributed to:

• Supply Chain Disruptions: Persistent issues from the pandemic and geopolitical conflicts.
• Energy Costs: Significant driver of production costs for energy-intensive materials.
• Economic Policies: Impact of Brexit and global trade agreements.
• Market Demand: Shifts in housing market dynamics and consumer confidence.

Historical and Current Price Trends in Construction Materials

Analyzing historical prices of construction materials reveals significant deviations in recent years. For instance, the annual price growth of steel and lumber has exceeded the typical 0-20% fluctuation observed in previous decades. The current trend shows a price decline for some materials like concrete reinforcing bars and fabricated structural steel, yet the industry must remain vigilant to potential price hikes due to ongoing geopolitical tensions and economic factors.

Long-Term Trends

Historical data suggests that periods of high-cost inflation are often followed by stabilization and potential decreases as market conditions adjust. The current trend indicates a gradual cooling of prices, but the industry must remain vigilant to potential new disruptions.

 

Strategies for Managing Costs

 

Proactive Procurement

To mitigate cost volatility, contractors should adopt strategies such as:

• Early Purchasing: Secure materials in advance to avoid future price hikes.
• Diversified Suppliers: Reduce reliance on single suppliers to manage risks.
• Strategic Partnerships: Collaborate with suppliers for better terms and reliability.

Efficiency and Innovation

Improving efficiency and adopting innovative practices can help manage costs:

• Technology: Utilize construction management software to optimize procurement and reduce waste.
• Sustainable Practices: Implement green building techniques to reduce energy consumption and material costs.
• Training Programs: Invest in upskilling workers to address labor shortages and improve productivity.

Financial Planning

Effective financial management is crucial:

• Cost Forecasting: Regularly update cost projections to reflect market conditions.
• Contingency Funds: Allocate reserves to manage unexpected cost increases.
• Government Support: Leverage available grants and subsidies for construction projects.

Labour Market Challenges and Skills Shortages

The construction industry has also faced significant labour market challenges, including a skills shortage that has been exacerbated by Brexit and the COVID-19 pandemic. The lack of skilled workers has led to higher labour costs and project delays, affecting both new construction projects and the renovation market. Recruitment difficulties, particularly for trades like carpentry and bricklaying, continue to be a critical issue for the industry.

By understanding the factors influencing building materials costs and adopting strategic measures, the industry can navigate the current challenges and position itself for future growth. Unlock your project’s potential and streamline your procurement process – book a C-Link demo today!

 

[1] Source: JLL Research, U.S. Bureau of Labor Statistics
[2] https://www.fmb.org.uk/resource/state-of-trade-survey-q2-2022.html

 

Photo by Jungwoo Hong on Unsplash

About Paul Heming

Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.