Labour shortages, Brexit and war in Ukraine will lead to rising construction costs, says survey

Labour shortages, Brexit red tape and the war in Ukraine will lead to further increases in construction costs in the UK, according to a major survey.

Turner & Townsend’s International Construction Market Survey (ICMS) highlights growing inflationary pressure in regional cities that could hinder the Government’s ambition to level-up the country through public and private investment.

A spokesman said: “Cost escalation in Leeds is forecast to reach double-digit inflation (10 per cent) this year, up from 5 per cent in 2021. Key contributors to this dramatic growth are the significant investment being made in build-to-rent developments and the growth in student accommodation.

“Inflation in other major markets slightly trail Leeds, with London expected to reach 9.5 per cent, Manchester 9.0 per cent and Birmingham 9.0 per cent in 2022. Edinburgh and Glasgow are forecast to have the lowest cost escalation of the UK’s major cities, however both still face a significant 7.5 per cent rate of inflation this year.”

A spokesman said: “Cost escalation in Leeds is forecast to reach double-digit inflation (10 per cent) this year, up from 5 per cent in 2021. Key contributors to this dramatic growth are the significant investment being made in build-to-rent developments and the growth in student accommodation."

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Labour shortages continue to pose challenges for the UK, with 1.3 million vacancies recorded in March to May 2022 according to the Office for National Statistics (ONS), an almost 70 per cent increase on the 765,000 recorded a year earlier. Turner & Townsend data shows average labour costs in the UK have reached $44.19 (£33.60) per hour, while in London this average rises considerably to $52.28 (£39.75).

High demand for ‘green collar’ workers as government and businesses seek to achieve net zero targets is resulting in particularly costly labour for the installation of solar power, heat pumps and insulation schemes. In London, the cost for these workers has reached $68.39 (£52.00) per hour.

The spokesman added: “The impact of the war in Ukraine and the ongoing complexity in managing cross-border trade with the EU continues to compound supply chain challenges seen in the immediate aftermath of the pandemic. In Manchester, for example, the average cost of brick has increased by 11.3 per cent in the past year to $789 (£600) per 1,000 units, while in Leeds the price of structural steel has soared by 43.3 per cent to $3,946 (£3,000) per tonne.”

Martin Sudweeks, inset, UK managing director, cost management at Turner & Townsend, said: “The data still shows London topping the league table of UK cities on construction costs. This reflects the convergence of strong demand for new private and public sector development following the pandemic with ongoing supply chain pressures compounded by Brexit and the impact of the war in Ukraine.

“However, regional cities also continue to see substantial cost increases. This is most notable in Leeds, as a result of the unlocking of build-to-rent developments and the growth of investment in student accommodation.”