In 1Q 2023, costs have increased by 1.4% in comparison to 4Q 2022, down from a quarterly growth of 1.7% recorded for 4Q 2022.

This trend is in line with BCIS General Building Cost Index and All-In Tender Price Index, where annual growth for both has been easing since the peak in 2Q 2022 – standing at 8.1% and 8.6% in 1Q 2023, respectively.

Increases in the interest rate over the past 18 months by the Bank of England have significantly affected the housing sector.

New construction output in the private housing sector has been declining since 3Q 2022, recording two-quarters of a contracting output (quarterly drops of 5.3% and 2.1% in 1Q 2023 and 4Q 2022 respectively).

On an annual basis, the private new housing output has slightly increased. Half of the respondents to the PHCPI survey attributed the increases in housebuilding costs to a rise in the materials’ costs, and 36% noted an increase in subcontractors’ costs.

Only 5% reported an increase in both materials and labour costs. For the second consecutive quarter, PHCPI received some reports of a decrease in the materials’ costs (9% of responses).

Housebuilders expect the building cost inflation to continue to ease, reporting an expected 1% increase for 2Q 2023.

April’s figures for headline (CPI) inflation and especially a high rise in core inflation indicate inflation is likely to be ‘sticky’ and to persist longer than previously thought.

This is likely to result in further interest rate hikes in 2023, from 4.5% to a possible 5.5% towards the end of this year.

Interest rate increases and consequent increases in mortgage costs will continue to adversely impact housing affordability and put more pressure on housebuilders.

Demand is slowing, as reflected in April’s data for residential transactions, which reported a 32% drop in comparison with the same period last year.