New-build cost increases running well above inflation

The cost of building new homes is accelerating significantly faster than the rate of inflation, according to research commissioned by the National Housing Federation.

The research, undertaken by the Centre for Economics and Business Research for the housing association trade body, found that the cost of building new homes was rising by 12.3% a year in June 2022, well above the general CPI rate, the government’s preferred inflation measure, which hit 9.4% that month.

The figure also means the cost of building new homes is accelerating faster for housing associations and housebuilders than general construction prices are rising – with general construction inflation mirroring CPI inflation at 9.6% in June 2022.

Kate Henderson, chief executive of the NHF, said the research demonstrated the huge financial pressure that housing associations are under. It also found that the cost of repair and maintenance services for housing associations was rising most quickly of all – at a rate of 14% in June, having peaked at nearly 17% in April this year.

The research comes as the government is expected to launch a consultation on plans to cap the amount by which housing associations can increase their rents by next year, in a bid to protect tenants from the impact of the cost-of-living crisis.

Henderson said pressures on associations were “likely to worsen over the coming months”, and would feed through to “all areas of spend”, with landlords already facing the pressure to invest in building safety and retrofitting homes for zero carbon.

She said: “We know there will be particular challenges for supported housing providers who operate on very tight margins.

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“Housing associations must ensure they can continue to maintain their homes and provide vital services to residents in the years ahead. They are also concerned about the impact rising living costs are having on social housing residents.

“In this context they been thinking very carefully about their approach to future rents and actively looking at what additional support they put in place for residents.”

While many in the sector accept the reality that double-digit rent rises, which would be allowed under the existing formula, would be unacceptable in the current financial crisis, there is also genuine concern over the impact of lower increases on association finances, and their ability to invest in development.