Building costs are set to increase by 15 per cent over the next five years, according to a new forecast by the Building Cost Information Service (BCIS).
The data company said that tender prices will rise by 20 per cent in the same period.
It also predicted that tender prices will rise faster than cost inflation in the final quarter of 2024.
Labour remains the main driver of input costs, though its rise is predicted to slow by 16 per cent between the third quarter of this year and the third quarter of 2029.
BCIS chief economist Dr David Crosthwaite said: “The upside risk to labour costs is that wages are driven up by widely reported skills shortages, which could impact on the viability and affordability of projects.
“The workforce is 88 per cent of what it was before the pandemic, when there were already long-standing concerns about fulfilling skill requirements.”
Earlier this week, new quango Skills England highlighted the challenges for construction to meet current demand, even before the government announced plans to build 1.5 million homes by 2030.
It said that modern methods of construction could be “expanded considerably” to help.
Crosthwaite said: “Although some uncertainty was resolved with the outcome of the general election, bringing a degree of stability, so much is now dependent on what is actually going to be in the Autumn Budget.
“We’ve heard lots from Labour about its plans. Its slogan to ‘get Britain building again’ is promising for the sector, but we’re still lacking detail around many aspects, from its housing plan to public sector funding and major project reviews.”
Total new work output is predicted to grow by 24 per cent over the forecast period.
The BCIS also highlighted the knock-on effect that the administration of ISG will have on subcontractors.
Crosthwaite said: “Insolvencies in the supply chain represent an ongoing source of concern for the sector, in terms of both capacity and impact on cashflow. The effects of ISG going into administration will no doubt be felt throughout the supply chain. The consequences when a main contractor becomes insolvent are that subcontractors and suppliers are left unpaid, which will likely result in further business failures.”
