Introduction

BCIS, the leading provider of five-year construction industry forecasts, is instrumental in shaping the sector’s future. The ability to anticipate trends and changes is a linchpin in this industry, helping businesses navigate through ebbs and flows.

The latest forecast for 3Q2023 anticipates a surge in construction costs and tender prices. This prediction, while crucial, signifies potential turbulence for industry players.

This article aims to shed light on the outlook for the construction sector for 2024, delving into the factors driving costs, the expected decline in output, and the potential influence of the upcoming general election.

 

Factors Affecting Construction Costs and Tender Prices

As we delve into the intricate world of the construction industry, one cannot overlook the significant role that labour supply and costs play in shaping the overall construction costs. It’s akin to understanding the value of each cog in a well-oiled machine. From skilled workmen to project managers, every role contributes to the construction process. However, inflating labour costs can cause a ripple effect, leading to an increase in overall construction costs and tender prices.

  • Labour shortages: The industry is grappling with a scarcity of skilled labour, a predicament worsened by the ongoing RAAC crisis. This shortage exerts upward pressure on wages, thereby escalating overall construction costs.
  • Training and Retention: The cost of training recruits and retaining experienced workers also adds to the overall labour expenditure. As companies strive to maintain a skilled workforce, these costs are often factored into the tender prices.

On another front, the issue of material cost inflation is also impacting the industry. Although there are signs of a cooling trend, the cost of materials remains significantly elevated compared to pre-Covid levels. While the industry may breathe a sigh of relief at a cooling trend, the costs are still high enough to cause concern.

  • Supply Chain Disruptions: Challenges in the supply chain, heightened by the global pandemic, have led to increased costs for materials. From quarries to construction sites, disruptions at any step can inflate prices.
  • Import Restrictions: Import restrictions and tariffs can also escalate the cost of certain materials, directly affecting construction costs and tender prices.

These factors converge to create a complex landscape for construction costs and tender prices. A rise in these elements, coupled with other industry challenges such as the RAAC crisis and construction insolvencies, can create a precarious situation for industry stakeholders. Similar to a domino effect, the increase in one area can trigger a chain reaction, leading to increased costs and tender prices in the broader industry.

The interplay between these factors is a testament to the complexity of the construction industry, illustrating the importance of comprehensive forecasting and strategic planning for businesses operating within this sector. As we move forward, understanding these driving elements will be key in navigating the anticipated shifts and challenges in the construction landscape.

 

Slow Recovery for Construction Output

With the tumultuous tides of the construction industry becoming more apparent, BCIS’s forecast reveals a sobering truth – a predicted fall in construction output in the years 2023 and 2024. This bodes a slow recovery for the sector, further complicated by several interconnected factors.

 

Why the Decline?

One might wonder why such a dip is expected. The reasons are multifaceted and interrelated. For one, labour shortages are becoming more pronounced. Skilled construction workers are in high demand, yet supply is dwindling, pushing up labour costs and slowing down projects.

Furthermore, these labour shortages are exacerbated by the ongoing RAAC crisis. The crisis has disrupted supply chains and increased uncertainty within the industry, further straining resources and slowing down output.

Secondly, construction costs are sharply increasing due to rising materials costs. Despite inflation cooling off somewhat, it remains significantly elevated compared to pre-Covid levels, hammering an already beleaguered industry.

 

The Impact of Construction Insolvencies

Construction insolvencies have also made an unfortunate appearance in this perfect storm, causing additional disruptions in supply chains and reducing capacity. These insolvencies have led to:

  1. An increase in project delays and cancellations
  2. Higher risk and uncertainty for contractors and suppliers
  3. Reduced competition, which can lead to higher prices and lower quality

Consequently, the insolvencies have not only created immediate problems for the affected companies but have also generated ripples throughout the construction sector.

 

The Bigger Picture

How does this slowdown impact the industry as a whole? For starters, a drop in output can lead to fewer jobs, reduced economic contribution, and lower investment in the sector. It also means that demand for new buildings and infrastructure may outstrip supply, leading to potential issues in housing and public services.

Yet, despite these challenges, it’s important to remember that the construction sector is incredibly resilient. While the road to recovery may be slower than we’d like, the industry has weathered storms and will continue to adapt and innovate through current and future challenges.

The forecast for 2024 might be challenging, but it’s not all doom and gloom. After all, in the words of the famous British statesman Winston Churchill, “difficulties mastered are opportunities won”.

 

The Role of Government in the Industry’s Recovery

With the construction industry facing numerous challenges, the role of the government is significant for recovery. The upcoming general election may bring policy shifts which could significantly impact the sector. Government plans and policies play a critical role in shaping recovery strategies and instilling confidence in the industry.

  • The new government could introduce measures to alleviate the effects of labour shortages and rising costs.
  • Infrastructure projects and investments could be prioritized to stimulate the sector.
  • Uncertain political climate may affect industry forecasts and stakeholder confidence.

In these uncertain times, the construction industry needs to navigate carefully, keeping a close eye on the political landscape and potential changes that may come with the next election.

 

Conclusion

Wrapping up, the construction sector is bracing for a period of slowed recovery heading into 2024, with costs and tender prices on the rise due mainly to labour supply, related costs, and materials inflation.

Skilled labour shortages and the ongoing RAAC crisis are also adding complexity, with the effects of construction insolvencies further disrupting supply chains and reducing capacity.

With the next general election looming, the future direction of government policy could have a sizable impact on the industry’s recovery. Amid this uncertainty, it is more vital than ever for those in the sector to stay informed and agile.

BCIS Online, with its regular quarterly updates and annual reports, offers a valuable resource for staying abreast of the latest forecasts and trends in the industry.