BCIS (Building Cost Information Service) forecasts 17% construction cost increases through 2030. As chief economist David Crosthwaite put it in December: "The challenge for 2026 will be managing those pressures in a market where clients may start to feel more confident, but margins remain tight."
For SME developers, four cost drivers are hitting construction budgets simultaneously and each requires a different response.
1. Labour: The structural squeeze
The construction workforce has shrunk 10.8% since the pandemic—some 250,000 jobs have gone. CITB (Construction Industry Training Board) estimates the industry needs 251,500 additional workers by 2028, and there's no obvious source for them. Apprenticeship completions remain low and the EU workforce that plugged shortages pre-Brexit has largely disappeared. In London, EU construction workers dropped from 42% to just 8% between 2018 and 2021.
BCIS forecasts the Labour Cost Index rising 17% through Q4 2030. Unlike the 2022 materials spike, this isn't a supply chain blip that will resolve itself. It's structural and, to an extent, demographic.
What this means: Trades with the steepest shortages, like thermal insulation, steelwork, electrical, will see the sharpest wage growth. If you can lock in subcontractor relationships now, rather than tendering project-by-project, you'll benefit from priority access when it matters.
2. Materials: Moving again
Material prices are climbing again. The 3.0% year-on-year increase to November 2025 may sound modest, but it marks the end of the pricing plateau that gave developers breathing room.
BCIS forecasts 15% materials cost increases through 2030. Not as dramatic as the post-Covid surge, but steady pressure that erodes margins over a typical development cycle.
What this means: Standard just-in-time delivery assumptions are risky. Engaging suppliers at the design stage and before specifications are locked in will prevent costly substitutions and delays later.
3. Building Safety Levy: The new line item
The Building Safety Levy (England) Regulations 2025 passed Parliament in November. The levy launches 1 October 2026, with rates confirmed for every local authority in England.
Rates range from £12.70/sqm in County Durham to £100.35/sqm in Kensington & Chelsea. Brownfield sites qualify for 50% relief—but only where 75%+ of the redline is previously developed land. Crucially, the levy applies to gross internal area, including communal spaces. Apartment schemes pay on corridors, lobbies, and bin stores.
Worked example: A 50-unit scheme averaging 75 sqm per unit. In Tower Hamlets at the brownfield rate (£30.60/sqm): £114,750. The same scheme in Westminster (£91.80/sqm brownfield): £344,250. That's a £230k difference based purely on postcode.
What this means: Building control applications submitted before 1 October 2026 avoid the levy entirely—provided works commence within three years. If you're close to submission, there's a meaningful incentive to accelerate.
4. Gateway delays: Improving, but still slow
Some good news: the Building Safety Regulator made 700+ decisions in Q4 2025, its highest quarter since launch. The backlog is clearing. But developers are still building six-month buffers into programmes for Gateway approvals, and that's prudent.
Extended programmes don't just add time—they multiply costs. Labour inflation compounds. Materials pricing shifts. Finance charges accumulate. A 25% programme extension rarely means 25% more cost; the effect is multiplicative.
What this means: Build Gateway timelines into feasibility assumptions, not construction planning. And work with lenders who structure facilities around these realities, not pre-2024 norms.
The bottom line
These four drivers aren't moderating—they're compounding. Labour shortages are structural. Material prices are rising again. The Building Safety Levy launches in October with confirmed rates. Programme delays persist even as the BSR improves.
The question for 2026: do your appraisals reflect the market as it is, or as it was?
FAQs
How much will the Building Safety Levy cost my project?
Rates range from £12.70/sqm to £100.35/sqm depending on location, with brownfield sites receiving 50% relief. The levy applies to gross internal area including communal spaces. A 50-unit scheme costs around £115k in Tower Hamlets or £345k in Westminster. Applications submitted before 1 October 2026 are exempt if works commence within three years.
What's driving construction cost inflation?
Labour is now the primary driver—the workforce has shrunk 10.8% since the pandemic with 251,500 additional workers needed by 2028. BCIS forecasts 17% labour cost increases and 15% materials increases
through 2030. Unlike the 2022 materials crisis, labour shortages are structural and won't self-correct.
How should I adjust development programmes?
Budget six months for Gateway approvals despite recent BSR improvements. Extended programmes amplify all other cost pressures through compounding effects on labour, materials, and finance. Factor this into financial models, not just project planning.
