Home building costs vs home value – what would happen if home value was building material dependant?
The value of an average Blackheath terraced house has increased in value by £69,096 in the last 12 months, an increase in value of 12.2%. Yet the costs of building a Blackheath home have shot up even more, meaning the price of Blackheath new homes and any building works you do to your home in the coming years could be a lot higher.
The British house building profession is experiencing a building materials supply problem. Everything from cement to bricks, timber and roof tiles, plastic guttering, copper wire and pipe to insulation, and even kitchen sinks have become scarce. When people can find them, they are costly.
For example, looking at the timber industry, three-quarters of the UK's building timber comes from abroad, so lockdowns around Europe put a restraint on the timber processing industries of Sweden, Lithuania and Latvia throughout 2020. In addition, building material supply chains were interrupted due to the application lockdowns imposed by their Governments, resulting in many sawmills in those countries restricting shift work to comply with their country’s social distancing rules. Some mills even stopped all work for eight weeks last year, meaning they were incapable of cutting, milling or treating timber, causing their existing stocks of building wood to run dry.
Yet, whilst we were all in lockdown, everyone started doing DIY projects, so the public demand for building timber in the UK remained high, giving little opportunity for UK sawmills (let alone North-eastern Europe) to catch up and restock to the levels previously held before the pandemic.
Building timber costs 112% more than a year ago, steel RSJ’s are a lot more expensive because iron ore has gone up 120.1% whilst aluminium is up 56.8%, and copper is up 59.7%.
All the blame cannot be laid at the feet of the virus and lockdown. The ‘B’ word caused issues with supply at the start of the year. Building materials are a worldwide supply chain issue; this spring’s Suez boat crisis, when many boats were diverted around Africa (as the length of time the blockage was going to last was unknown), exacerbated the problem. All of this has combined to make the cost of sending a 40ft container from China to Tilbury Docks £7,576 today, compared to £1,195 just before the crisis. Also, supplies of sand and cement are particularly low with massive demand from the large £98bn High Speed (HS2) rail project. All this combined is affecting many building projects, big and small, across the UK.
If an average Blackheath terraced house had risen by the price of building timber in the last 12 months, today it would be worth £1,200,683, not the current £635,456.
RSJ (steel joists) take twenty weeks to arrive, compared with the typical five weeks, whilst plasterboard is being rationed with weeks of delays for the ‘good stuff’ and MDF wood, which used to take just seven days to arrive, now takes over a month. Roof battens need to be ordered a month in advance, whilst pre-lockdown they were commonly held in stock by every building merchant.
Demand for building materials has increased so quickly because many British homeowners are driving the explosion. Those people in safe jobs with little opportunity to spend money on foreign holidays and fancy restaurants decided to invest in their property and gardens. According to the Bank of England, this craving for home improvement has particularly exploded since the mature generation have started to be double jabbed (their savings accounts having increased by £180bn during the pandemic).
These increases in the price of raw materials will fuel inflation, possibly affecting interest rates upward. An increase in interest rates will make a material difference to the value of Blackheath property.
Please do share your stories of issues with builders and building materials over the last 15 months in the comments. I appreciate any stories you can provide to help others in Blackheath.