Have Property Development and Construction Costs Peaked?

Property developers and construction companies have not had an easy ride as of late. Ever since the COVID-19 crisis hit, the costs of essential building materials have skyrocketed to unprecedented highs. The war in Ukraine took a further toll on already stretched supply lines, making it impossible for developers to turn a profit without imposing their own lofty price hikes.

With the UK facing its worst collective living-cost crisis in recent history, the immediate outlook for the average household is fairly bleak. But there may be at least a small degree of respite on the horizon for builders and property developers, as construction costs are beginning to plateau.

Better yet, there is reason to believe that building costs will begin to decrease going into 2023, enabling developers and construction companies across the UK to kickstart (or restart) their planned projects.

Will the economic downturn trigger a reduction in building costs?

One of the reasons why building costs increased significantly towards the tail-end of the COVID-19 crisis was the simply insurmountable divide between demand for building materials and available supply. Developers and construction companies across the UK raced to keep up with demand, and in doing so completely swallowed up the available contingency of key materials.

Supply lines dried up, availability of essential materials hit rock bottom and prices skyrocketed as a result.

When this happens, many developers and construction companies decide to shelve planned projects or put their existing projects on hold. They simply had no realistic way of generating meaningful profits with such elevated building costs, so they made the decision to wait things out. Their aim was to sit tight until the market returned to some kind of normality, rather than paying over the odds, and reducing the profitability of their projects in the meantime.

All of this seems to be paying off for many, who have already noted a significant reduction in the cost of some essential building materials. Some have even reported that compared to the end of Q2, they are now receiving quotations up to 10% lower on key materials and components.

These reductions in building costs are resulting from two things: A period of comparatively low demand when costs were disproportionately high and the rectification of a broad range of supply chain issues. Key building materials are still not available in the same plentiful supply they once were but are no longer as difficult to come by.

As a result, the manufacturers and suppliers are not able to charge such high prices for them and low prices are gradually trickling through to property developers and construction companies.

In forwards into 2023

Of course, putting too much stock into what is happening (or appears to be happening) right now may not be advisable. The events of the past few years have taught us that nothing is set in stone, and we have no idea what may be around the next corner.

As the crisis continues to escalate in Ukraine, it is perfectly plausible that major supply chain issues could once again cripple the UK’s property development sector.

Even so, the consensus seems to paint a picture of a slightly more stable and predictable future for the industry as a whole. Building material, component and labour costs may remain elevated indefinitely but are unlikely to hit the same kinds of peaks as those experienced at the height of the COVID-19 crisis.

Property developers and construction companies are exercising greater care and caution than ever before, and in today’s turbulent climate are unwilling to take the kinds of risks they would once have happily accepted as the norm.