Procurement · 9 January 2017

Thousands of small building firms hit by rising material prices

Rising material prices
Small construction companies in Britain import up to a quarter of all materials for building projects

Some 70 per cent of the UK’s small construction firms have struggled against rising material prices, as new research uncovers the current challenges facing the nation’s builders. 

A new survey, conducted by the Federation of Master Builders (FMB), revealed the extent to which increased costs have affected small building firms across Britain, following the depreciation of the pound throughout the second half of 2016.

Continued economic uncertainty following the result of the EU referendum in June led to a decline in the value of sterling, driving up importing costs for many industries.

The FMB stated that rising material prices were of great concern to builders, as a quarter of all materials used by construction companies in Britain are imported from outside the country.

Specifically, a 22 per cent increase in the cost of Spanish late was reported by small construction firms, which now also expect to pay an extra fifth on the price of timber – two key materials for the industry. 

Commenting on the findings, Sarah McMonagle, director of external affairs at the FMB, expressed concern at rising material prices, and predicted further increases of up to 15 per cent in 2017.

“This is significant and underlines the vulnerability of the industry to sudden fluctuations in the strength of our currency.

“The combined pressure of higher material prices and the rising cost of skilled labour represents a serious challenge to builders,” she said in a statement.

McMonagle suggested that smaller firms with tighter margins were particularly at risk, stating that increased material costs can hit at short notice and once a building project is already underway.

The organisation also warned that rising material prices would be handed down to home owners, as project managers seek to balance the books by raising rates. 

One way that construction owners have attempted to mitigate increased material costs was by stipulating in the project’s contract that rates would rise alongside materials prices.

The news of rising material costs has increased the attention on the government’s upcoming housing white paper, due later this month.

Communities secretary Sajid Javid has pledged that government will deliver “major, long-lasting reform” through its strategy.

The government is expected to place a minimum threshold on local authorities for the number of new homes built every year.

To further support small construction companies battling rising material and labour costs, the chancellor Philip Hammond in October announced a House Building Fund worth £3bn, designed to support smaller developers through short-term loans for manufacturing and long-term funding for house-building.

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.