The latest IHS Markit/CIPS UK Construction Purchasing Managers’ Index saw a rise to 64.2 in May with construction firms attributing the surge in order books to strong demand for residential building work, evidenced by house building being listed as the best-performing category of construction activity in May.
The building of new homes has been on the Government’s agenda for some time now with a target of building a million new homes over the next five years, increasing housebuilding levels to an average of 300,000 new build homes per year by the mid-2020s.
More recently, we have seen the launch of a new £7.1bn National Home Building Fund, a stamp duty holiday that has run since last July on properties under £500,000 and the introduction from the 28th June of a new affordable housing pledge which will see low-income workers in England being able to apply for a discount of up to 50% on a new-build home.
But while there is demand for new homes, there has been a knock-on effect in the demand for materials with construction firms reporting severe material shortages, lengthy delivery lead times and price hikes, all exacerbated by extended lockdowns and supply chain issues. The Federation of Master Builders has warned that some construction companies may have to delay projects as a result of the current materials shortages and cost increases.
A report compiled by the Department for Business, Energy & Industrial Strategy, reveals that the cost of construction materials is at an all-time high. There has been an 8.4% year-on-year cost hike across all construction-related materials, with prices jumping by 2.6% in the last month alone.
The product to suffer the biggest cost rise is concrete reinforcing bars seeing a 37.3% annual cost hike. Meanwhile, fabricated structural steel is now costing 31.8% more than it did a year ago and the price of imported plywood is up 22.3%.
Dan Grimshaw, founder of Beam Development, told New Civil Engineer that “the present disruption, although tough to take, could ultimately hasten a long-overdue modernisation of the sector and deliver a fundamentally different ‘new normal’. It could lead to a visible shift to a more-considered, more-productive, more-planned way of working in the next five to 10 years.” Dan believes that for the industry to adapt and flourish, we need to coordinate information across the supply chain and embrace the use of new digital technologies, such as product configurators or cloud manufacturing.
Whilst there is no short term solution to the material’s shortage, output for construction is still looking positive for the future. Construction firms that contribute to the IHS Markit/CIPS UK Construction Purchasing Managers’ Index remain highly upbeat about their near term growth prospects. Nearly two-thirds of the survey panel forecast an increase in output during the year ahead.
Whilst the news that construction output is strong is welcome, the challenges the sector faces are far from over. Material shortages are set to continue for some time to come and construction firms will have to start looking toward embracing new technologies to remain viable and competitive.