Stronger growth in housebuilding cost inflation

Annual housebuilding cost inflation, as measured by the BCIS Private Housing Construction Price Index (PHCPI), stood at 2.0 per cent in 1Q2025, down from a peak of 15.3 per cent in 2Q2022 and up from 1.7 per cent reported in the final quarter of 2024.

On a quarterly basis, this represented a 0.7 per cent increase compared with 4Q2024, up from 0.3 per cent in the previous quarter.

At the same time, ONS construction output figures demonstrate reduced pressure on the private housing sector.

In 1Q2025, private new housing output saw a quarterly increase of 1.4 per cent, and the sector was up by 3.3 per cent on the same quarter a year earlier.

Karl Horton, head of data services at the Building Cost Information Service (BCIS), said: “In light of the government targeting 1.5 million new homes over the course of this parliament, we’re also asking housebuilders about the expected impact on their own output volume over the next two years.

“Tellingly, 47 per cent of respondents said they are expecting an increase in the volume of projects in the range of 0-5 per cent, 40 per cent said they are not expecting any change, and just 13 per cent said the increase would be in the range of 5-10 per cent.

“In order to reach the levels required to meet this target – an average of around 1,000 homes per day – there’s going to need to be a significant uptick in activity. With the government announcing further measures to boost demand among both larger housebuilders and SMEs over the next couple of years, it will be interesting to see if that sentiment shifts over the coming quarters.”

Of the respondents reporting a change in costs in 1Q2025, 40 per cent reported an increase in materials’ costs and another 40 per cent cited subcontractor cost increases as the main drivers.

Labour cost increases were noted by 10 per cent of respondents. A total of 5 per cent reported lower labour costs and the remaining 5 per cent cited a decrease in material costs as the reason for construction cost change for the quarter.

Looking to 2Q2025, the housebuilders surveyed said they expected to see an average increase in costs of 1.0 per cent on the quarter, which would produce annual growth of 2.3 per cent.