The Triple Threat To Contractors And Their Housing Projects

The Triple Threat To Contractors And Their Housing Projects

The construction industry accounts for approximately 7% of the UK economy. Given its weight, it is important for business owners and industry stakeholders to keep up to date with the trends affecting the sector. In this article, we look at the current threats that contractors need to be aware of as we move into 2025, and especially those that concern new-build residential housing projects and supply-demand imbalances.

So, what are the main threats currently affecting the UK construction industry?

1. The Current Housing Crisis

The UK housing market is facing some interesting dynamics in 2025. While the economy is still stagnant or sluggish, the housing market is buoyant, with average property prices hitting a record high in late 2024, and the sector growing by around 4.8% each year. Despite this, the housing market is very much a ‘buyer's market’, with buyers having more negotiating power due to the number of available properties. This threatens to create crisis conditions for building contractors and developers, as they struggle to balance the challenges of supply and demand, long-term government inaction, the decline in council homes, and the impact of the buy to let market.

Let’s look at these factors in more depth:

Supply And Demand

Demand for housing is increasing due to longer life expectancies and more one-person households, as well as the impact of high migration, but supply has not kept up. A stuttering economy, combined with skills shortages and increased housebuilding targets, has created a challenging environment for property and housing development. The Covid pandemic and its aftermath saw a significant slowdown in building, with housebuilding dropping to its lowest level in 2023. Added to this are ongoing concerns about affordability for working families. Some analysts predict a rush to buy new homes in Q1 2025 due to changes in the Stamp Duty threshold, with the supply side struggling to keep up due to logistical and economic challenges.

Government Inaction

Successive UK governments have not built enough homes to meet demand since the mid-20th Century. The cost of housing in the UK is up to 44% higher than the equivalent cost in similar developed countries, a situation which is exacerbated by a pronounced lack of consistent and effective policy interventions to address affordability and supply issues – especially among younger first time buyers. In 2025, therefore, while mortgage lending is forecasted to increase due to lower interest rates, the overall outlook remains challenging for the sector without further government action.

Buy-To-Let Market

Over the past few years, a growing number of investors have bought up properties to rent out, reducing the number of homes available for purchase. This has shaped the demand for new build properties among developers as well as sharpening the supply and demand issue for new buyers. However, the buy to let sector is experiencing some shifts in 2025. For example, mortgages for buy to let purchases are expected to decline by 7% compared to 2024, and current interest rates still pose a challenge for some buy to let landlords and deter many from entering the market.

Declining Council Homes

The number of council homes in the UK has been steadily declining since 1980, which has fuelled the growth of the private rental sector while also driving up property prices due to the reduced availability of affordable housing options for some families.

Economic Factors

High interest rates, inflation, wage stagnation and entrenched economic inequality are part of the mix when it comes to the current housing crisis. Declining rates of owner occupation especially among the under-35s, growing mortgage stress, and rising rents complete the picture. On the positive side of the equation, lower mortgage rates in 2025 could be a major driver of market recovery over the coming year, while rising rents and large injections of wealth into the sector are pushing house prices ever upward, which could be good news for housing developers and investors in the near term.

Rental Costs

Private rents have escalated in cost since 2018, consuming a larger proportion of household income, and often making it difficult for young families to save enough to purchase a property of their own. Unfortunately, this is expected to have a continued and notable impact on the British housing market in 2025. Despite a temporary dip, rentals are expected to surge again, putting additional economic pressure on tenants.

Homelessness

The shortage of affordable homes has led to a surge in homelessness. Over the past five years, for example, homelessness in England and Wales has risen by as much as 26% in some areas, highlighting a growing housing crisis and an urgent need for more affordable and sustainable housing solutions.

What Is The Solution?

This many-sided scenario has created increased demand and a shortage of new homes. However, it isn’t all bad news, with ‘cautious optimism from UK house builders’ arising from a 40% increase in new home registrations, according to an article published on ConstructionBuzz.co.uk in November 2024.

Some solutions to the housing crisis include:

• Increasing housebuilding volumes, particularly for affordable and social housing

• Reforming the planning system to make it easier for developers to build homes

• Encouraging older homeowners to downsize, increasing the available pool of family properties

• Tightening regulations on the private rental market to avoid private investors from detrimentally affecting the supply of affordable new build homes for first-time buyers in certain areas.

2. Rising Costs And Skills Shortages

The UK construction sector has had a turbulent journey over the past few years, and faces several challenges in 2025 due to high materials costs and persistent skill shortages. These twin pressures contributed to the devastating collapse of ISG Ltd in September 2024, showing that even large contractors are not immune from these challenges.

For example, building costs are projected to increase by up to 17% by 2030, with civil engineering tender prices expected to rise by 19%. In a sector where construction materials can make up 74% of a project budget, this can severely impact the completion and profitability of a build.

There are several reasons why construction material costs are rising, including:

• Supply chain disruptions: Disruptions to the UK-EU supply chain following Brexit have led to increased material costs and slower project completion rates.

• Inflation: Inflation has caused the prices of building materials and wages to increase across the sector, which has made property development more expensive for clients, developers, and contractors alike.

• Raw material shortages: A shortage of raw materials in the UK construction sector in the immediate aftermath of Brexit and the Ukraine war has increased demand and prices over the past few years, impacting project costs and timelines, as contractors struggle to secure the necessary resources to meet their project requirements. For instance, a timber shortage can cause construction companies to increase their costs for new structures. Timber prices in the UK have been extremely volatile in recent years, rising rapidly in 2021 and 2022, followed by a steady decrease since 2023, making it difficult for developers and contractors to accurately forecast project costs.

• Project schedule delays: Delays can cause the cost of materials and labour to change significantly from the initial budget estimates. For instance, overrun projects require workers to be on site for longer periods, increasing labour costs and eating into margins, as well as incurring additional plant hire and rental expenses for equipment. Project delays can also trigger a complex web of legal disputes and contractual negotiations – leading to significant sums now being spent by contractors to mitigate or manage delays in an attempt to control construction costs!

Construction companies can try to minimise the impact of rising costs by streamlining their construction processes, although this is often easier said than done. Lean supply strategies that reduce waste and maximise value, such as just-in-time (JIT) deliveries, value stream mapping (VSM), and pull planning, can save contractors money while also minimising operational risk from theft, damage, and price fluctuations.

What About The Impact Of The Skill Shortage?

The Construction Industry Training Board's (CITB) Construction Skills Network (CSN) report predicts that the UK will need an additional 251,500 construction workers by 2028 to meet projected demand. This is bad news for a sector already grappling with a substantial skills shortage in key areas, and is exacerbated by the problem of an ageing workforce and not enough young people entering the sector through apprenticeships or university.

• Number of workers

If the CITB figures are correct (these were optimistic according to the UK Trade Skills Index 2023 Report, which suggested an additional 937,000 new recruits are needed by 2032 to bridge the skills gap), this would bring the total number of construction jobs in the UK to 2.75 million by 2028.

• Annual requirement

This is an increase from the 44,890 workers required annually in the 2023-27 Outlook.

• Major sectors

The current main areas of demand are:

1. Private housing
2. Infrastructure
3. Repair and maintenance

The skills shortage is not a new problem and nor is it restricted to the construction industry, but it has definitely been exacerbated by Brexit, inflation, and the cost-of-living crisis (forcing some workers to leave the sector due to pay constraints or living costs). The situation is especially concerning in regards to the recruitment of carpenters, plasterers, and bricklayers.

Equally concerning is the fact that the UK construction industry relies on an ageing workforce. More than 20% of construction workers are in the 51-60 age range. Since they’re getting closer to retirement, replacing them further complicates the situation for many construction firms. The growing skills shortage has resulted in longer project times, increased wage demands, and hiring difficulties for many contractors – a situation that is unlikely to change substantially in 2025.

3. Transition To A Net Zero Economy

The government’s pledge to be carbon ‘Net Zero’ by 2050 is imposing additional requirements on construction companies, mainly in the form of a carbon output reduction in construction projects. The relentless focus on sustainability is intended

by the current Labour government and the previous Conservative administration to bring increased competitiveness, but is also causing disruption given the large-scale nature of the changes required.

We can’t forget that construction is behind 45% of the UK’s total carbon emissions. Bringing this to zero

in 25 years is easier said than done considering the size and output of the industry, which relies on construction equipment, fuel, and raw materials that sometimes have a large environmental impact.

A gradual step-by-step approach to higher sustainability seems the most – dare we say – ‘sustainable’ path, and this is what we’re doing at SC4. Timber, for example, is a well-known super sustainable and renewable resource, and we believe large-scale, sector-wide change is possible if businesses take tangible steps in that direction and live up to their corporate social responsibility standards.

Timber frame construction can contribute to net zero in several ways, including:

• Carbon storage: Timber captures and contains carbon that would otherwise be released into the atmosphere, and it stores this carbon throughout its lifespan. One cubic metre of timber contains about a tonne of carbon dioxide.

• Low energy manufacturing: Manufacturing timber is less energy intensive than manufacturing many other primary building materials, including concrete and steel. According to a report by the American Consortium for Research on Renewable Industrial Materials (CORRIM) in 2017, steel framed homes require 17% more energy than a timber framed property of the same size, and a concrete-framed home requires 16% more energy.

• Reduced energy use: Timber prevents energy from escaping in buildings, which can reduce emissions and energy expenditure across its lifetime.

• Responsible forestry: Timber frame construction can promote responsible forestry practices, such as replanting trees, especially when lumber is sourced from sustainable forestry plantations in the UK or Europe.

• Certifications: Certifications like the Forestry Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC) help consumers, contractors, and developers identify wood from responsibly managed forests, leading to greater uptake of wooden products in construction compared to concrete and steel.

Prepared For The Future

At SC4 Carpentry, we are aware of how threatening these issues are to the British construction sector. We want to reassure our clients that we have full capability to fulfil commercial projects, especially all aspects of contract carpentry and timber frame projects.

We understand how our work impacts the overall project and work in partnership with principal contractors and developers, site staff and other trades to facilitate the smooth running of projects, helping to minimise unplanned costs, maintain quality and health & safety standards and keep projects on programme.

If you’d like to discuss the issues raised in this article, please feel free to contact us by clicking here, or by calling 0771 556 8760

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