A decorator recently stopped by to make an offer for some painting work on our house. He was pretty flexible about when he could do the job. “I’m at the end of two and a half years of boom time,” he said somberly. “People have been pouring money into home improvement because they haven’t been able to take holidays or go out during lockdown – but inflation is killing that.”
There are clear signs that consumers are having to scale back their plans as household budgets become tighter. Nationwide’s monthly spending reports show spending on home improvement and home improvement fell 7 percent in June and 8 percent in July, compared to 12 months earlier.
But there is also strong inflationary pressure in the construction and home improvement sectors as labor costs rise and material prices soar.
The government’s most recent monthly summary of building materials and components prices shows that repair, maintenance and improvement (RMI) materials prices increased 26 percent over the year to June 2022. Concrete rebar was particularly hard hit, by a staggering 58 percent and mild steel by 46 percent.
Jim Parlato, director of Browns Builders Merchants in Derby, adds that over the past 12 months the price of cement is up 28 percent, plasterboard is up 30 percent, copper pipe is up 15 percent and timber is up 15 to 20 cents .
He explains: “Overall, building material manufacturers are large energy consumers and are therefore massively affected by rising energy prices, scarcity of raw materials and other supply chain problems such as transport costs.”
Such price increases are too big for small builders to absorb, says Brian Berry, executive director of the Federation of Master Builders (FMB). “More than 18 months of rising material prices have forced 81 percent of small local builders to pass those increases on to their customers because they can’t afford to include them in their bottom line.”
Especially for consumers planning large and potentially lengthy home improvement projects, the choices are strong in the face of mounting cost corrections. They could delay, hoping prices will fall back when the economic slowdown hits, stop work altogether, or downsize.
Such tough decisions are now very apparent, says Robin Chatwin, head of south-west London at Savills, the estate agent. “The combination of rising material costs, coupled with bottlenecks and delivery delays, is increasingly giving budding renovators food for thought,” he comments.
“Many homeowners are no longer able to complete the major renovations they originally planned because offers may have gone over budget, but in most cases they still plan to proceed with some form of home improvement — so more of a reduced, lighter renovation than one.” complete one.”
Adam York, a business owner living in south-west London, was faced with such a decision after plans for an architect-designed home renovation fell well over budget. “We started with a very clear budget, but even after weeks of cuts, the cost was still almost two and a half times what we planned to spend,” he says.
York and his wife have scaled back their plans. Instead of hiring an architect, they will manage and design the job themselves, using independent craftsmen.
“We’ll still be doing the kitchen and bathrooms, but we’re not going to take the roof off or add the dormers, and we won’t be moving out while the work is in progress,” he explains.
What about the risk of price increases leaking out as the work progresses? “I don’t think it’s such a problem when you’re working with a bunch of different craftsmen because they’re making a bid on a specific job that’s valid for a specific period of time,” says York.
However, other customers are more concerned about the risk of shifting spending target items as costs increase. John Newcomb, chief executive of the Builders Merchants Federation, reports that material inflation is pushing consumers to demand price guarantees if they proceed with scheduled work.
“As consumers tighten their belts and become less willing to enter into contracts without a firm commitment to the final price, SMEs are seeing a drop in inquiries and contracts. A reduction in the volume of work will increase the pressure on SME companies,” he warns.
So far, builders and larger construction companies have not been so badly affected. But, says Newcomb, “they share the concerns of the entire market about rising energy costs and interest rates, and labor shortages.”
He expects that the likelihood of continued price increases will lead contractors across the board to use more flexible offerings with “appropriate contractual mechanisms such as indexing, cost mark-up, indicative sum, etc.”
At the FMB, Berry believes there are steps that could be taken to help homeowners keep renovation and construction companies in business. “As pressure on the cost of living mounts, practical steps like eliminating VAT on all RMI [repair, maintenance and improvements] Labor would help maintain a pipeline of work for builders,” he argues.
There’s another worrying aspect of the trend to scale back or hold off on home improvement projects, and that’s the potential impact on people’s urgent need to make their homes more energy efficient. Again, VAT could provide an incentive for consumers to undertake this type of eco-friendly renovation, says Ian Fletcher, policy director at the British Property Federation. “For a number of years, the BPF has been asking the government to introduce a VAT exemption for this work.”
Kingfisher, owner of B&Q, estimates that households will pay an average of £1,730 a year for energy from October 1 because their homes are inefficient.
Hire-purchase landlords are in a particularly acute situation: they must achieve minimum efficiency standards by 2025 if they want to rent out their properties for new or extended periods. You might be forced to invest in improvements despite rising costs.
Fletcher said more radical proposals such as stamp duty reform, homeowner grants and council tax cuts could also be implemented to increase the incentives for homeowners in general to make their homes more energy efficient. “Now is the time for the government to look at these ideas again.”
In the meantime, however, it looks as if a hard winter is ahead of construction companies and craftsmen: They find themselves in the quandary of rising prices and increasingly cautious customers.