How is the 2021 building material shortage impacting housebuilding?

If you have paid even a small amount of attention to the news over the past year, you will have undoubtedly seen or heard stories about rapid rises in the cost of construction materials, on account of a scarcity of things like timber at builders’ merchants around the world. Building material shortages in 2021 have been problematic for home builders - particularly for smaller construction companies or those performing self-builds - where secure storage of materials might be an issue. 

This is because SMEs tend to purchase materials as and when they need them, as opposed to larger corporations which have the ability to bulk-buy and store things for use at a later date. The UK in particular is home to many small construction companies, and the inability to source materials has been particularly problematic for these firms. 

At the end of 2020, some 93% of builders agreed that while building material price trends tend to fluctuate slightly, in 2021 there had been a significant building materials price increase across the board.

Is there a building material shortage?

Price rises in the construction industry can be attributed to a shortage of materials. In 2021, many of the largest builders’ merchants in the UK have warned of a struggle to obtain materials in what can be described as one of the largest supply chain crises in decades. 

In some instances, suppliers have had to begin rationing the sale of certain materials, which has limited the availability of some products and caused the prices of others to increase. Manufacturers and suppliers of commonly-used building materials are now suggesting lead times of up to ten months for certain products. Prior to the current shortage of construction materials, lead times on out-of-stock products typically ran for around three months.

Building material shortages 2021: what construction materials are in short supply?

In addition to a timber shortage, construction companies are struggling to source cement, steel, plasterboard, insulation, roof tiles, and certain electrical components. It is expected that prices could rise by as much as 20 percent on these items. Tools and consumables, such as wheelbarrows, adhesives, paints, plumbing items, and fixtures/fittings are also being rationed by manufacturers and trade suppliers alike.

What is causing the shortage of building materials?

A perfect storm of lockdown restrictions, trade issues and increased demand for raw materials as the pandemic wanes have combined to create the shortage of building materials. As a result, most manufacturers are playing catch-up, with many having had to furlough workers and reduce production. In some cases, manufacturers were forced to temporarily cease production altogether. 

Increased demand for materials has meant that container shipping rates from countries like China have risen significantly. This has led some companies to navigate the complexity of having to streamline orders or make fewer orders to make shipping more affordable, which has led to further material shortages. 

Many plumbing materials come from East Asia, and even the UK’s major container ports are struggling to cope with high container volumes. To make matters worse, the Suez Canal blockage has created a backlog of orders, new UK border rules are impacting the free flow of construction materials, and a major supplier of cladding recently had a warehouse fire. In that respect, it’s fair to say that a combination of bad luck and market uncertainty are the main contributing factors driving the shortage of building materials.

How is the 2021 building material shortage impacting housebuilding?

The biggest problem faced by housebuilders in the UK in 2021 is undoubtedly the widespread shortage of materials. The knock-on effect is that the price of materials continues to rise throughout the industry. For example, British Steel, which stopped accepting new orders for a short period during the pandemic, has been forced to significantly increase its prices, raising costs by £100 per tonne. 

These sorts of price increases have ultimately impacted the overall cost of building projects, with investors having to pay more than previously expected to ensure their constructions come to fruition. Of course, as these ongoing costs get passed down the chain, the end result is that homebuyers can expect house prices to rise as the materials crisis plays out.

However, it won’t just be house prices impacted by the shortages. An absence of construction materials is also likely to delay building projects, which could prove problematic - not just for investors, but for the UK government also. The United Kingdom is currently in the midst of a housing crisis, and a shortage of materials means that even if the Prime Minister announced a decision to build millions of homes, it would be physically impossible without the materials and tools to hand. 

The supply issues have led many companies - particularly those who export construction materials - to resort to spot pricing as opposed to standard contract rates. This means that many builders’ merchants are having to pay for goods based on what products are available at a certain price on a given day - and the uncertainty around this means that smaller construction companies, in particular, are having to weather the storm of now knowing how much they can expect to pay for goods each time they go to place an order. This creates cash-flow issues and contributes to further stalling of construction work.

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