Real Estate Finance Insights

Real Estate Finance Insights

Having weathered the global pandemic storm, housebuilders are now facing another difficult challenge.

Timber, steel, roof tiles, bricks, screws and fixings, tools, plumbing and sanitaryware are all in short supply, as are aggregates, cement and ready-mix concrete. Basically, all the materials needed to build houses.

The global shortage is being blamed on booming demand, as the construction industry bounces back after Covid-19. In the UK, the importation of materials from the continent and Far East is being delayed by additional border checks, creating further frustration for the industry.

A survey conducted by the Construction Products Association (CPA) found that nearly a quarter (23%) of its members involved in heavy activity i.e. aggregates, cement, ready-mix concrete, structural and reinforcing steel believed getting hold of the building materials they need will be the primary constraint over the next year, the highest proportion since the CPA began polling its members in 2008.

The CPA and Builders Merchants Federation both believe that issues with the global supply and demand for timber are also unlikely to be resolved any time soon.

Operationally, this is causing significant disruption for housing developers, with build timescales adversely affected and delays to projects inevitable.

Financially, it is also hitting builders in the pocket. According to the IHS Markit/CIPS UK Construction Purchasing Managers Index, stronger demand conditions, stretched global supply chains, increased shipping charges and rising commodity prices have combined to deliver the sharpest increase in average cost burdens across the construction industry since 2008. Overseas shipping costs have increased significantly, with prices per freight container rising by more than 650 per cent.

Anecdotally, we're aware of some of our customers facing delays on building projects due to shortages in roof tiles, cement and plaster. As a bank, we're continuing to work closely with customers to ensure any issues are identified early and to also factor in possible delays and extra costs when agreeing the loan facility.

For the Government, the materials shortage is threatening to derail its 'Build Back Better' campaign. So much so, that it has said it will intervene if shortages become an 'ongoing and material obstacle', particularly for smaller housebuilders.

Housing minister Christopher Pincher said: "We are examining the barriers that SME housebuilders face as part of our ongoing work to improve productivity and competition in the housing market and open it up to smaller builders.

"If material shortages become an ongoing and material obstacle to growth it will be factored into plans to support the sectors."

But material shortages and the associated rising costs aren't the only obstacle facing housebuilders. In May, the Federation of Master Builders, which represents SMEs, said its members had reported increasing difficulties in recruiting almost all key trades in the first quarter of this year.

Thirty-eight per cent of its members reported bricklayer shortages, up from 22% in the last quarter of 2020, and 34% were struggling to hire carpenters and joiners, up from 23%. General labourers are also in scarce supply, as are plasterers.

Together, the materials and labour shortages have created a near-perfect storm for the construction industry. Having already been battered by Covid-19, the industry will be hoping for calmer conditions in the year ahead. 

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