Annual housebuilding cost inflation has eased significantly, with the latest data from the Building Cost Information Service (BCIS)¹ revealing a rate of 2.0% for the first quarter of 2025. This marks a notable slowdown from the 15.3% peak recorded in the second quarter of 2022 and reflects a slight rise from the 1.7% reported in the final quarter of 2024.
Quarterly, housebuilding costs saw a 0.7% increase compared to the previous quarter, continuing a gradual upward trend from the 0.3% growth seen at the end of last year.
Meanwhile, official figures from the Office for National Statistics (ONS) indicate a steady recovery in the private housing sector. Private new housing output increased by 1.4% in the first quarter of 2025, with year-on-year growth reaching 3.3%, offering encouraging signs for the construction industry.
Confidence Among Housebuilders Remains Cautious
Despite the government’s ambitious pledge to deliver 1.5 million new homes over the course of this parliament, confidence among housebuilders remains mixed.
According to Karl Horton, Head of Data Services at BCIS: “In light of the government targeting 1.5 million new homes over the course of this parliament, we’re also asking housebuilders about the expected impact on their output volume over the next two years.
“Tellingly, 47% of respondents said they are expecting a project volume increase in the range of 0-5%, 40% expect no change, and just 13% foresee an increase of 5-10%.
To reach the required levels — approximately 1,000 homes per day — a significant uplift in activity will be needed. With further government measures to stimulate demand for both large housebuilders and SMEs, it will be interesting to see how sentiment evolves over the coming quarters.”
Materials and Subcontractor Costs Drive Construction Inflation
Housebuilders report that the primary drivers behind rising construction costs remain materials and subcontractor expenses. In the first quarter of 2025:
- 40% of respondents cited higher materials costs
- Another 40% pointed to rising subcontractor costs
- 10% noted increases in labour costs
- 5% reported decreases in labour costs
- 5% mentioned lower materials costs
Looking ahead, surveyed housebuilders anticipate an average 1.0% increase in construction costs for the second quarter of 2025, equating to projected annual growth of 2.3%.
If you are a housebuilder and would like to contribute to the quarterly BCIS PHCPI survey, please contact contactbcis@bcis.co.uk.
¹The Building Cost Information Service (BCIS) is a trusted source of cost data and inflation metrics for the UK construction industry. Established to support project planning and budgeting, BCIS provides reliable information on building costs, including materials, labour, and overall construction price trends. Their Private Housing Construction Price Index (PHCPI) offers valuable insights into housebuilding inflation, helping developers, contractors, and policymakers track market conditions and plan effectively.
Read next: Driving global growth in property technology – Build in Digital
Are you a building professional? Sign up for a FREE MEMBERSHIP to upload news stories, post job vacancies, and connect with colleagues on our secure social feed.
