Although construction output reached a 24-year high in June 2021, a severe shortage in construction products and materials is driving prices up. With the materials shortage yet to show signs of relenting, Richard Zeff, managing director of independent estate agent Stones Residential, highlights the impact it is likely to have on the construction sector and housing market.
The cost of building materials for new homes has grown between 60 per cent and 120 per cent in the last 12 months. If we look at Bushey, Hertfordshire, as a case in point, this could have serious implications for Bushey homeowners and Bushey landlords for the cost of their mortgages and ultimately Bushey house prices.
£941,029. ‘Wood’ you pay that for a Bushey terraced house?
The value of an average Bushey terraced house has increased in value by £61,966 in the last 12 months, an increase in value of 13.96 per cent. Yet, the costs of building a Bushey home have shot up even more in the last 12 months, meaning the price of Bushey new homes and any building works you do to your Bushey home in the coming months and years could be a lot higher.
The British house building profession is experiencing a building materials supply problem. Everything from cement to bricks, timber and roof tiles, plastic guttering, copper wire and pipe to insulation, even kitchen sinks have become scarce – and when people can find them, they are costly.
For example, looking at the timber industry, three-quarters of the UK's building timber comes from abroad, so lockdowns around Europe put a restraint on the timber processing industries of Sweden, Lithuania and Latvia throughout 2020. In addition, building material supply chains were interrupted due to the lockdowns imposed by their governments, resulting in many sawmills in those countries restricting shift work to comply with their country’s social distancing rules. Some mills even stopped all work for eight weeks last year, meaning they were incapable of cutting, milling or treating timber, causing their existing stocks of building wood to run dry.
Yet, while we were all in lockdown, everyone started doing DIY projects, so the public demand for building timber in the UK remained high, giving little opportunity for UK sawmills [let alone those in north-eastern Europe] to catch up and restock to the levels previously held before the pandemic.
Building timber costs 112 per cent more than a year ago, rolled steel joists [RSJs] are a lot more expensive because iron ore has gone up in price by 120.1 per cent, while aluminium is up 56.8 per cent in price and copper is up 59.7 per cent.
All the blame cannot be laid at the feet of the virus and lockdown. The ‘B’ word [Brexit] caused issues with supply at the start of the year. Building materials are a worldwide supply chain issue; this spring’s Suez boat crisis when many boats were diverted around Africa [for the length of time the blockage was going to last was unknown] exacerbated the problem. All this has combined to make the cost of sending a 40-foot container from China to Tilbury Docks around £7,576 today, compared to £1,195 just before the crisis. Also, supplies of sand and cement are particularly low with massive demand from the large £98 billion HS2 rail project. All these aspects combined are affecting many building projects, big and small, across the UK.
If an average Bushey terraced house had risen by the price of building timber in the last 12 months, today it would be worth £941,029, not the current £505,848.
RSJs take twenty weeks to arrive, compared with the typical five weeks, while plasterboard is being rationed with weeks of delays for the so-called ‘good stuff’, and MDF wood usually takes seven days to arrive; now it takes over a month. Roof battens need to be ordered a month in advance, whereas pre-lockdown they were commonly held in stock by every building merchant.
Demand for building materials has increased so quickly because many British homeowners are driving the explosion. Those people in safe jobs with little opportunity to spend money on foreign holidays and fancy restaurants decided to invest in their property and gardens. According to the Bank of England, this craving for home improvement has particularly exploded since the mature generation started to be double jabbed, since their savings accounts have increased by £180 billion during the pandemic.
These increases in the price of raw materials will fuel inflation, possibly sending interest rates upward. An increase in interest rates will make a material difference to the value of Bushey property, and this will be consistent across the UK.
