If you're using pre-2024 cost assumptions, your margins are under pressure. The Building Cost Information Service (BCIS)—the construction industry's authoritative source for cost data, used by over 4,000 consultants, contractors and clients—forecasts 15% cost increases over the next five years in their July 2025 industry outlook.
But this isn't uniform inflation. BCIS breaks this down into labour costs rising 16% through to Q2 2030 and materials costs growing 13% over the forecast period. More importantly, four distinct cost drivers are affecting projects differently, and each requires a specific response.
Data sources: BCIS Construction Industry Forecast (July 2025), Building Safety Act implementation guidance, industry Gateway approval delays. Typical project impact estimates based on 50-unit residential development.
1. Labour: 7.5% Annual Wage Growth
Construction wages are rising at 7.5% annually—faster than any other sector and well above the 5.3% economy-wide average. This isn't a temporary spike.
Why it's not stopping
The numbers tell the story. CITB's Construction Workforce Outlook 2025-29 shows the industry needs 47,860 additional workers annually just to meet forecasted demand. Meanwhile, only 713,000 apprentices registered in 2021—the lowest since 2010, with nearly half not completing their courses.
Brexit compounded existing demographic problems. Post-Brexit, we've lost European labour that the industry relied on, while the domestic workforce declined during the pandemic. The Construction Industry Training Board reports that 35% of UK construction workers were born abroad—a pool that's shrunk significantly.
BCIS forecasts the Labour Cost Index will increase by 16% through to Q2 2030, driven by persistent skills shortages and the government's National Insurance and National Living Wage increases hitting in April 2025.
Regional differences matter
Not all markets face identical pressure. Skilled tradespeople like thermal insulators and steelworkers saw above-industry-average pay increases in 2024, but regional variations are significant. Northern regions show different wage dynamics, partly reflecting lower baseline costs and different supply-demand balances.
What to do
- Lock in specialist trades early. Thermal insulation, steelwork, and electrical trades face the steepest wage inflation. Consider longer-term agreements with reliable subcontractors rather than project-by-project tendering.
- Factor location into site selection. Regional wage differentials are widening, making location-specific labour cost analysis more important than national averages.
- Build relationships before you need them. With skills shortages, having established relationships with quality trades gives you priority access when projects launch.
2. Materials: High Prices, Tight Supply
Material prices are 37% higher than January 2020, with only a marginal 0.7% fall over the past 12 months. They haven't dropped—they've plateaued at historically elevated levels.
Supply constraints persist
Concrete block deliveries dropped 4.6% year-on-year, with inventory levels 19.3% below June 2024 levels. Dr David Crosthwaite, BCIS chief economist, notes: "The much-anticipated uptick in demand just doesn't seem to be materialising, but supply constraints keep prices elevated."
London concrete pricing ranges £100-£150 per cubic metre, with specialised mixes commanding 15-25% premiums due to performance requirements and limited availability.
Looking ahead
BCIS expects materials costs to grow 15% over the forecast period through 2029. This reflects underlying supply chain constraints rather than demand surges—a different dynamic requiring different responses.
Practical impact
- Procurement timing vs project needs. Standard just-in-time delivery assumptions no longer hold. Build buffer time into material delivery schedules, particularly for structural elements.
- Specify with supply reality in mind. Standard specifications may face longer lead times or substitution pressures. Early supplier engagement during design phases prevents costly changes later.
- Consider regional supply chains. Material availability varies significantly by location, particularly for specialty products. Factor transport costs and lead times into site selection decisions.
3. Building Safety Act: New Costs, Real Money
The biggest misconception about the Building Safety Act is that it only affects high-rise buildings. All projects—"even small ones"—must now have BSA-specific principal designer and principal contractor appointed, fundamentally changing liability and process requirements.
Scope reality
The Act impacts anyone who employs or is employed to carry out building works to commercial or residential property, regardless of the scale of work. This includes SME developers who may never have dealt with such formal duty holder roles.
Liability changes
Section 38 gives private individuals the right to claim damages directly against subcontractors without contractual relationships—"cutting out the middle man". This removes traditional contractual protection chains that SME developers relied on.
The Act implements Building Liability Orders that can impose liabilities on associated corporate bodies, potentially affecting successor companies where original contractors become insolvent.
Time impact
Developers are building six months into their programmes for Gateway approval processes. Gateway 2 delays are reported across the industry, with the Building Safety Regulator acknowledging processing bottlenecks.
Even relatively minor works now trigger extensive documentation requirements: photographic evidence at multiple stages, independent third-party sign-offs, and documentation collated to higher standards than previously required.
Financial hit
The Building Safety Levy launches Autumn 2025, expected to raise £3.4 billion over 10 years. While final rates aren't confirmed, this represents a material new cost for residential developments.
Fines for BSA breaches can reach hundreds of thousands of pounds, with potential criminal charges in severe cases.
Be prepared
- Start documentation early. The Act requires documenting evidence of Building Regulations compliance for the long term. Systems implemented now save scrambling later.
- Professional indemnity review. BSA roles carry wider liability to check others' work, potentially increasing "duty to warn" responsibilities. Insurance requirements may increase.
- Process integration. Rather than treating BSA compliance as add-on requirements, integrate documentation and approval processes into standard project workflows from day one.
4. Extended Programmes: When Time Costs Money
The construction industry has quietly adjusted to a new reality: longer project programmes. Industry reports show developers building six months extra into schedules to accommodate Gateway approvals and general process delays.
Knock-on effects
Extended programmes don't just add time costs—they amplify every other cost pressure. Labour rate increases compound over longer periods. Material price inflation affects more delivery phases. Finance costs accumulate over extended development periods.
Site security, insurance, and holding costs all increase proportionally. For leveraged developments, extending programmes by 25% can materially impact project returns.
Planning response
- Build realistic buffers. Industry standard programme assumptions from 2022 no longer reflect approval realities. Factor Gateway processing times into critical path planning from feasibility stage.
- Structure finance accordingly. Extended programmes require different facility structures. Work with lenders who understand the new timeline realities rather than pre-2024 assumptions.
- Manage cash flow timing. Revenue recognition delays affect working capital requirements. Plan draw-down schedules around realistic completion dates, not optimistic projections.
Managing the New Reality
These four cost drivers interact in ways that multiply their individual impact. Extended programmes amplify wage inflation effects. BSA compliance requirements increase both time and specialist labour needs. Material supply constraints affect programme scheduling, which compounds finance costs.
Priority order
- Address labour security first. Of the four drivers, labour shortages create the most programme risk. Securing trades provides certainty for other planning decisions.
- Plan around BSA timelines second. Gateway processes are mandatory and non-negotiable. Build these into critical path from project inception.
- Manage materials through relationships. Supply constraints respond better to partnership approaches than spot-market purchasing.
- Finance for the new reality. Work with development finance providers who understand operational complexities, not just financial metrics.
Market advantage
Understanding these pressures gives competitive advantages. While competitors struggle with generic "cost inflation," you can target specific mitigation strategies. Early action on labour security, realistic programme planning, and appropriate finance structures separate successful projects from troubled ones.
Finance partners
The complexity of managing four distinct cost drivers highlights the value of working with development finance providers who understand operational realities. Cookie-cutter approaches that worked in stable cost environments no longer suffice.
Experienced lenders recognise that managing these pressures requires operational sophistication, not just financial engineering. They structure facilities around realistic timelines and understand that early-stage cost certainty planning actually reduces project risk.
Conclusion
These aren't temporary market blips—they're the new operating environment. Labour shortages reflect demographic and policy changes that won't reverse quickly. Material supply constraints reflect structural industry capacity issues. Building Safety Act requirements are permanent regulatory changes. Extended programmes are industry adaptation to these new realities.
Smart developers adapt their strategies to work with these pressures rather than against them. Smart lenders understand that the old models don't fit the new market—and structure their approaches accordingly.
The question isn't whether these cost drivers will moderate—it's whether you're planning for the market as it is, not as it was.
