Small and medium-sized (SME) housebuilders are deeply concerned about rising costs and the impact this could have on their businesses in both the short and longer term. Small housebuilders are seeing costs increase not in just one or two areas, but right across the board. Material prices are rising steadily, and it is the same story for prices of key equipment such as skips. SME housebuilders are also contending with a rise in the price of diesel.
Added to all that, due to the well-reported construction skills shortage, the cost of hiring skilled labour is also increasing. Cumulatively, these price increases represent clear challenges to the profitability of smaller housebuilders.
It is imperative that the number of SME housebuilders making losses on projects does not increase further, as this could result in large numbers going out of business. This would impede the Government’s ability to meet its housebuilding targets and also have a very negative impact on the wider economy.
More than half of construction SMEs report that rising material prices are squeezing their margins. Materials started to increase in price in June 2016 when sterling depreciated in value following the EU referendum. High demand due to buoyant international markets could also be contributing to price increases since that time. This problem is likely to get worse before it gets better with the FMB’s latest ‘State of Trade Survey’ for Q3 2018 showing that 90 per cent of construction SMEs are expecting material prices to rise further in the next
Three quarters of construction SMEs report that the price of skips has risen over the last 12 months and this is a further problem for smaller firms. The average cost of an eight-yard skip has gone up by £24 over the past year, meaning an additional cost of £72 for the average new build home. Furthermore, the widely-reported increase in diesel prices is also impacting on the profitability of construction SMEs. Nearly half have made lower margins on projects because of this and more than one in 10 have had to turn down jobs they would have normally accepted as they are too far away. While in itself the increase in diesel prices does may not have a drastic impact on contractors and developers, when margins are already squeezed to such an extent via other factors, even small price increases in diesel give cause for concern.
The construction skills shortage is one of the most problematic issues for the sector currently. More than two-thirds of construction SMEs are struggling to hire bricklayers – this is the joint highest figure since records began one decade ago. The number of firms reporting problems hiring carpenters is nearly as high. Naturally, this scarcity of tradespeople means that when construction employers can find people, they are paying inflated wages in order to keep them and this is putting further pressure on margins. With Brexit now just a matter of months away, this problem is predicted to get worse still with well over half of firms forecasting that wages will increase over the next six months.
The sector is therefore extremely concerned that the Government has accepted the recommendations in the recently published Migration Advisory Committee (MAC) report. The MAC report proposes a post-Brexit immigrations system that diminishes the ability of low skilled workers to enter the UK. The definition of low skilled also leaves much to be desired as it would include all Level 2 trades-people. This would be catastrophic for the UK construction sector and would make the Government’s housebuilding targets unachievable. Post Brexit, the UK’s immigration system must be needs-based and allow our most productive sectors to continue to flourish. The Federation of Master Builders, along with many other business groups, is calling on the Government to rethink its adoption of the MAC report recommendations and implement an immigration system that provides the construction industry with the labour it so desperately needs. With rising costs for SME housebuilders, the last thing we need is further pressure on salaries due to a dramatic drop in migrant labour.