By James Lockett From ProperPR

Research by real estate debt advisory specialists, Sirius Property Finance, has shown that the average cost of construction for a new-build property is set to climb by almost £18,000 per unit, a jump that could cost UK housebuilders £3.2bn per year. 

The research by Sirius Property Finance shows that the current average cost of constructing a new-build home sits at £2,375 per sq m. With the average house coming in at 73.45 sq ms, that’s a total estimated construction cost of £174,444 per property.

With an estimated 181,846 homes built last year in the UK, that’s a total of £31.7bn spent on the cost of construction. 

However, a forecast from the Building Cost Information Service predicts overall build costs to climb by 10.2% annually as of the start of this year, with materials driving this increase (+18.7%), while labour costs will see a more marginal increase (2.5%). 

As a result, the average construction cost of a new-build home is set to increase to £192,237 - a £17,793 dent to current profit margins. 

Based on the latest house building figures, this could push total construction costs across the sector to just shy of £35bn, a £3.2bn increase. 

Previous research by Sirius found that the asking price of new homes brought to market by large developers is currently £370,727, meaning that the current cost of construction accounts for 47% of a properties value. A 10.2% increase in construction costs would see this increase to 52% of asking price - a 5% uplift. 

However, the nation’s SME housebuilders would be better positioned to absorb this additional cost. With the average new-build delivered to market by SME housebuilders commanding an asking price of £543,108, current average construction costs account for just 32% of a properties value. 

The same 10.2% increase in construction costs would see this percentage increase to 35%, and although this would still bring just a 3% dent to SME profit margins, this sits below the 5% suffered by the nation’s big housebuilders. 

Notes:

• Sirius Property Finance provides specialist debt advisory for structured, development and investment real estate finance as well as commercial and regulated mortgages.
• The City based advisor has numerous experts across multiple asset classes including residential, commercial, care, hospitality and the student accommodation space. 
• Born out of the Brightstar Group, the UK’s largest B2B mortgage broker, Sirius ‘specialises in the complex’ – utilising some of the most knowledgeable consultants in the industry.