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Materials prices continue to push up building costs

The rising cost of oil and demand for steel in Asia mean prices for materials continue to shoot up despite the economic downturn, says Juliet Spackman

Contractors’ input costs have increased by 9.5 per cent since June 2007, with a jump of 4.4 per cent in the past quarter alone, according to the EC Harris/Construction News Contractors’ Input Cost Index.

Most of this rise is in the cost of materials, which have surged by seven per cent since March 2008, while labour costs have risen by a more moderate 0.9 per cent.

With the cost of oil soaring, the weak pound and strong demand from Asia, materials prices remain high despite the economic downturn, rising well ahead of their 10-year average rise of 3.5 per cent.

Oil prices have doubled over the year to nearly $140 a barrel (£71), dramatically impacting on manufacturers’ costs, driving up prices for fuel, raw materials and shipping. Concrete, bricks and blocks have all risen ahead of the Retail Price Index in the past year, by 8.7 per cent, seven per cent and 6.7 per cent respectively. Only timber prices showed a drop, falling by 0.8 per cent in the past quarter, following record rises last year.

But metal prices have seen the steepest increases. Suppliers have been hit by large price rises in raw materials - iron ore, coal and especially scrap metal (prompting the return of ‘rag and bone’ men).

Reinforcement prices have risen by nearly 30 per cent since the start of the year. Prices stand at £620 per tonne, up from £480 in December 2007.

Steel prices have increased by more than 10 per cent over the year. Corus introduced a £60 per tonne rise on 30 March, and further rises are predicted.

Regional variations in materials’ costs are considerable: London contractors can expect to add 10 per cent to the national average, while those in the north, Wales and Northern Ireland pay seven per cent below the UK average.

For labour, increases have been more modest. National average wages for skilled labour have increased by 3.8 per cent since June 2007. Unsurprisingly, London has the highest labour rates - 12 per cent above the national average - with the south-east 11 per cent above.

Northern Ireland sits at the bottom of the scale, with contractors paying daily rates of £126 for bricklayers and £122 for carpenters, while those in London pay £187 and £181.

From 30 June, many building operatives will see basic wage rates increase by six per cent as part of the CIJC agreement, considerably higher than the previous rises of 3.5 per cent and 4.3 per cent. Since 2004, the influx of Eastern European labour has helped keep wages down.

But high levels of EU investment in Eastern Europe, coupled with the weak pound, means many overseas workers are no longer finding it as economically advantageous to stay in the UK. If the trend of return migration increases, labour cost inflation could return.

The global economic slowdown has resulted in a cautious climate for investment, with developers putting even existing projects under review. The private housing and commercial sectors are hardest-hit.

Juliet Spackman is a cost researcher at EC Harris

To download PDFs of the material and labour prices for June 2008 and EC Harris/CN Contractors Input cost index for June 2008 click on the resource box on the right hand side of the page