'Plan early' — homebuilders warned building costs are set to rise 12% by 2030

Homebuilders and renovators face a challenging landscape as building costs are set to rise by 12% over the next five years, according to the latest forecast from the Building Cost Information Service (BCIS).

With tender prices also expected to increase by 15% and new work output predicted to grow by 19%, those looking to build or renovate must prepare for shifting costs and market conditions.

We reveal why it is predicted these prices will rise with labour costs, building materials prices and inflation all influencing your project.

Why are construction costs rising?

Dr David Crosthwaite, chief economist at BCIS, warns that 2025 could be another difficult year for the construction industry due to economic stagnation and inflationary pressures.

“Construction is facing a tough year ahead,” Crosthwaite explains. “With economic growth stagnating and inflation picking up again, stagflation is becoming a real possibility this year.”

Labour costs remain a primary driver, with the BCIS Labour Cost Index forecast to rise by 18% by early 2030. Key factors influencing these costs include the increase in National Insurance contributions and the National Living Wage, which could add pressure to project budgets.

Employer National Insurance contributions will rise from 13.8% to 15% in April, while the threshold for contributions will drop from £9,100 to £5,000 per employee. It is predicted this will damage firms profit margins even further than previously seen.

Materials costs: What to expect

While materials cost inflation had been moderating after its peak in 2022, the BCIS now predicts a 15% increase over the next five years.

Costs for materials, such as timber, steel and insulation, are also rising. While these costs were steady for a while, they are expected to increase by 15% over the next five years. This means if you're planning a renovation or new build, it's a good idea to purchase materials early to lock in prices before they go up.

This change comes after a brief period of negative growth in the BCIS Materials Cost Index in 2023 and 2024.

What this means for homebuilders and renovators

For those planning self builds or renovations, understanding these cost trends is essential.

Delays in construction output could affect project timelines, while increased costs might stretch budgets beyond initial estimates.

Dr. Crosthwaite points out: “We expect slow growth in construction output in the next year, but it should pick up after that.”

How to plan for rising costs

If you’re looking to build or renovate, here are some key takeaways, based on insights from Dr Crosthwaite:

• Budget for inflation: Factor in rising costs when estimating your project’s budget to avoid financial strain.
• Secure materials early: Locking in prices for essential materials can help you avoid unexpected cost hikes.
• Work with experienced contractors: Skilled professionals will help navigate price fluctuations and find cost-effective solutions.
• Explore energy-efficient solutions: Investing in sustainable features like ground source heat pumps, solar panels, and high-quality insulation can reduce long-term operational costs.

As costs continue to rise, preparation and strategic planning will be crucial for homebuilders and renovators alike. By staying informed and adapting to market trends, you can keep your project on track – despite the challenges ahead.