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'We survived the 2008 financial crash and the Second World War – but I've never known a time like this'

Construction builders shortages material costs
Construction builders shortages material costs

Chris Carr’s family building company is facing the worst conditions he has ever witnessed.

Set up by his grandparents more than 100 years ago, Grimsby-based Carr & Carr has survived multiple economic cycles and major global events including the 2008 financial crash and the Second World War.

But current conditions of surging material costs and availability – combined with staff shortages – are unlike anything previously experienced.

“I’ve never known a time like this – it’s the perfect storm,” says Carr, who has been a developer for almost forty years. “The worst thing at the moment is the materials shortages, and we’re seeing double-digit increases in prices as well.

“It’s difficult to determine a price for a job and tell someone when it will be completed, because you don’t know how much the materials are going to cost and you don’t know when you’re going to get them.”

Carr, however, could be one of the luckier ones. The industry-wide problems have forced hundreds of small family-owned companies out of business. It means that despite surging demand from families seeking renovations in the wake of Covid, many are struggling to find a builder – or being forced to delay plans that are taking too long.

Carr says he now has to wait up to six months for roofing tiles that used to arrive in two weeks, while bricks are taking two months as opposed to a fortnight.

“Many people are thinking there are now far too many risks and they just don’t want to do it anymore,” the managing director says. “Instead of having an extension now, people will probably just wait until next year.”

builders construction industry - Monty Rakusen/Getty
builders construction industry - Monty Rakusen/Getty

Neil Morley, a construction sector specialist and director at restructuring advisers Interpath, adds: “I know from personal experience that getting a builder to come round to get the cost for building an extension has been really challenging over the last six to twelve months.

“You couldn’t even get someone to come round to give you a quote let alone something they would stand by if you weren’t starting immediately.

“Those small local builders were inundated with work but they couldn’t fix the prices on materials, so they were feeling things more acutely.”

Company failures are on the rise. The number of insolvencies in the construction sector jumped by 142pc to 307 in February, up from 127 during the same month a year earlier, according to the Insolvency Service.

Another 400 smaller UK construction businesses went bust in April, marking an around 50pc rise compared with January 2020, according to the latest figures by the Office for National Statistics (ONS).

The number of construction bankruptcies are higher than in every other sector in the UK. Interpath’s Morley says the run-rate for creditor voluntary agreements (CVA) – a form of insolvency – is up by around 57pc compared to pre-pandemic levels.

He adds: “Insolvencies are picking up but we’re mainly seeing the lower end affected at the moment. Generally it is the creditor voluntary liquidations that are picking up, so the smaller businesses with less than 50 employees. They are quite specialist.

“They are often the people who are less sophisticated with their contracts so they can get caught out by price increases.”

It follows successive lockdowns that triggered a boom in the home improvements industry.

In 2021, the industry’s Construction Products Association (CPA) reported 20pc growth in the repair, maintenance and improvement market as households used savings from lockdowns to fit out their home offices as the working pattern shifted – and embarked upon loft extensions.

Yet raw material prices were starting to rise even then, leading advisers at Interpath to first notice signs of distress in the construction industry.

Morley says: “We were thinking at that point that there was a lot of pressure building up in the supply chain. There were a lot of people on fixed-price contracts, labour was becoming more expensive, and raw materials were becoming more expensive. It was just a lot of pressure building on the sector.”

Now, the CPA has warned the market would decline by 3pc this year and 4pc in 2023 amid spiralling inflation. Building materials inflation spiked at 22.5pc in May due to supply chain disruption and rising energy prices.

Among key materials used by housebuilders on a daily basis, prices for timber and steel products jumped 30pc and 45pc respectively in April, according to government figures, while major brick producer Forterra increased its brick prices by 12pc from April 1.

On top of inflation, China’s strict lockdown measures and the war in Ukraine are compounding existing supply chain disruption from coronavirus backlogs and putting home improvement projects on hold.

Beijing’s zero-Covid policies have caused shipping costs to soar due to delays at ports, while Russia’s invasion of Ukraine has cut supplies of key regional exports of nickel, copper and iron.

David O’Leary, policy director at the Home Builders Federation (HBF), says: “The situation in Ukraine compounded by the high demand for building materials through the pandemic and in the period since has made things particularly crunchy.

“The wider energy costs are obviously a big factor in the production of building materials as well. So it’s a triple whammy for the sector.

“For the new build sector this has all increased the cost of building materials, but there are also additional taxes, levies and regulations that have come onto the industry as well.”

Meanwhile, labour shortages are also hampering the construction sector, with the Structural Timber Association recently warning staff shortages could pose an even bigger problem than a lack of building supplies.

Interpath’s Morley argues housebuilders’ situation isn’t set to improve anytime soon: he predicts more significant distress in the final months of 2022.

“Administrations will start to increase because there will be pressure as we start to see an easing in demand for commercial buildings as people see that the UK economy is starting to slow slightly. And that will pick up towards the back end of this year.”

HBF’s O’Leary says: “The industry as a whole is better-equipped today than it was ahead of the financial crisis.

“But for the small players this is extremely difficult. They are facing a huge number of challenges. For them, it’s less about the inflation of prices, but the availability. They’ve also got labour cost increases.”