Housebuilding cost inflation in the UK continued its steady climb in the second quarter of 2025, with the BCIS Private Housing Construction Price Index (PHCPI) showing annual growth of 2.0%. The latest figures signal a continuation of the moderate upward trend seen throughout the year, as the construction industry grapples with materials, subcontractor, and labour cost pressures.
Housebuilding cost inflation: steady but persistent
According to BCIS, the annual housebuilding cost inflation rate in 2Q 2025 matched that of the previous quarter, sitting at 2.0%. On a quarterly basis, costs rose by 0.7% compared with Q1 2025, repeating the same increase seen earlier in the year.
This steady trajectory suggests that while construction costs remain a challenge for UK housebuilders, inflation is not accelerating at the rapid pace witnessed in recent years. Instead, the sector is experiencing measured cost growth, largely driven by materials and subcontractor expenses.
- 38% of respondents cited rising materials costs as the main driver.
- 33% reported subcontractor price increases.
- 24% pointed to labour cost inflation.
- 5% even noted lower subcontractor costs, showing some regional variation in the market.
- Looking ahead, housebuilders expect costs to rise by 0.3% in Q3 2025, maintaining annual growth at around 2.0% for the year.
Construction output paints a more positive picture
While cost inflation persists, the ONS construction output figures for Q2 2025 tell a more encouraging story for the private housing sector.
- Private new housing output rose 1.4% on the quarter.
- Year-on-year, the sector grew by 5.7%.
This signals that despite inflationary headwinds, UK housebuilding activity is on the rise, with developers finding ways to deliver more homes against a challenging economic backdrop.
Policy changes and housebuilder sentiment
Dr David Crosthwaite, chief economist at BCIS, highlighted the government’s recent announcement of new planning powers for local councils aimed at increasing housing delivery by 2030. However, survey results suggest housebuilders remain unconvinced:
- 54% of respondents said the changes will have no impact on delivery.
- 23% believe the new powers could boost housing supply.
- 8% predict a negative effect on output.
Crosthwaite commented: “All signs so far are that the government still has major inroads to make on boosting activity levels if it is going to come close to achieving its housebuilding target in this Parliament. Ideally that would mean working with both developers and local councils to achieve increased output and not being seen to put them in opposition.”
This sentiment underlines the ongoing tension between housing policy and private sector delivery, with many in the industry calling for closer collaboration rather than additional layers of regulation.
What this means for the digital construction sector
For the digital construction sector, the message is clear: with cost inflation steady but manageable and housing output improving, there is an opportunity to accelerate the adoption of digital construction technologies to further drive efficiencies.
Building Information Modelling (BIM), digital twins, and modular construction can all help housebuilders manage materials and labour costs.
Data-led planning tools can support collaboration between councils and developers, streamlining approval processes and reducing delays.
Cost benchmarking platforms such as the BCIS PHCPI itself remain vital for housebuilders looking to forecast and manage risk in a volatile market.
With housebuilding cost inflation expected to remain at 2.0% for the year and output climbing, the sector appears to be stabilising. But uncertainty remains around planning reform, housing delivery targets, and the wider economy.
For housebuilders, the focus will be on balancing rising costs with the need to ramp up supply. For the digital construction community, the task is to provide the tools and technologies that enable more efficient delivery, better collaboration, and long-term resilience in the face of ongoing cost pressures.
If you are a housebuilder and would like to participate in the BCIS PHCPI quarterly survey, please contact contactbcis@bcis.co.uk.
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