Surge in Construction Labour Costs Expected to Hit Industry

CONSTRUCTION LABOUR COSTS are set to overtake the cost of materials as the biggest challenge facing the industry during the year ahead, according to new analysis from the Building Cost Information Service (BCIS).

As part of its quarterly data briefing on construction inflation, BCIS is forecasting a 10 per cent uptick in labour costs over the next year, as high inflation and the cost-of-living crisis put pressure on wages.

The impact of inflation is compounded by ongoing labour shortages across the industry, with 69% of British civil engineering firms reporting difficulties finding skilled operatives for infrastructure projects that include HS2.

Construction Labour Costs

Dr David Crosthwaite, Chief Economist at BCIS

Dr David Crosthwaite, Chief Economist at BCIS, reported that annual growth in the BCIS labour cost index is predicted to increase to 5% in the third quarter of this year, rising to 8.3% in the second quarter of 2024.

He said: “While the cost of materials is now stabilising, labour is set to become the next biggest cost driver for construction going forward.

“Labour site rates continue to rise faster than wage awards. We’re expecting a period of catch-up, with people demanding wage increases that go towards offsetting some of the price rises we’ve seen across the rest of the economy.

“It’s also important to remember that while material cost increases are slowing, levels are still significantly higher than they were three or four years ago.”

Fewer Subbies

According to data from the Office for National Statistics (ONS) analysed by BCIS, there has been a declining trend in total employment in construction since the pandemic, mostly driven by a fall in self-employed workers.

Although the number of insolvencies is high – with more than 1,000 construction firms going bust in the last quarter – the total number of construction businesses operating has grown exponentially, from just under 200,000 in 2014 to approximately 375,000 in 2022, despite recent crises.

David Crosthwaite added, “Since 2019, the overall construction workforce has shrunk by 181,000 people – 98% of whom were self-employed. The number of those employed has also fallen, but by a smaller proportion.

“The volume of this decline is significant. What’s interesting is that despite the number of insolvencies having risen and the number of workers falling, the number of firms and labour productivity both appear to be increasing, suggesting that the industry is becoming more efficient.”

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