Housebuilding cost inflation edges higher as sector recovery remains uncertain

Annual housebuilding cost inflation, as measured by the BCIS Private Housing Construction Price Index (PHCPI), stood at 2.3% in 1Q2026, up on the 2% increase reported in the final quarter of 2025.

At the same time, construction output figures demonstrate ongoing pressure on the private housing sector. In 1Q2026, private new housing output saw a quarterly decrease of 2.6%, and a 6.7% decline on the same quarter a year earlier.

Dr David Crosthwaite, chief economist at BCIS, said: “While housebuilding cost inflation remains significantly below the peak levels seen in 2022, the sector continues to operate against a difficult backdrop. Weak buyer demand, affordability pressures and elevated financing costs are all continuing to weigh on activity and confidence across the market.”

As part of the 1Q2026 survey, housebuilders were asked what they see as the main threats to the recovery of the UK housing sector. The most common answers were macroeconomic uncertainty and rising materials costs, followed by planning, policy and regulatory challenges, then weak buyer demand and affordability constraints.

Dr Crosthwaite said: “The survey responses underline how complex the recovery challenge has become for housebuilders. Alongside cost pressures, the sector is continuing to adapt to planning, policy and regulatory change, while uncertainty around the wider economic outlook is making investment and delivery decisions more difficult.”

Of the respondents reporting a change in costs in 1Q2026, almost half (47%) reported an increase in materials costs and a further 33% cited subcontractor cost increases as the main drivers. Labour cost increases were noted by 20% of respondents.

Looking to 2Q2026, the housebuilders surveyed said they expected to see an average increase in costs of 1.6% on the quarter, which would produce stronger annual growth than has been in seen in recent quarters of 3.3%.

Dr Crosthwaite commented: “The expectation of stronger cost growth in 2Q2026 indicates that inflationary pressures are continuing to feed through the sector. Materials and subcontractor costs remain the primary drivers, while higher energy and transport costs, geopolitical pressures and increasing regulatory requirements are all adding to the cost base facing housebuilders.”

BCIS thanked the PHCPI survey respondents for their contribution.

If you are a housebuilder and would like to participate in the BCIS PHCPI quarterly survey, please email contactbcis@bcis.co.uk.

For more information about BCIS, please visit: www.bcis.co.uk

Ends

Editors notes

About BCIS

The Building Cost Information Service (BCIS) is the leading independent provider of construction data to the built environment and insurance sectors. For 65 years, BCIS has been collecting, collating, analysing, modelling and interpreting cost information to support built environment professionals, helping them provide cost advice, to have confidence in commercial decision-making and to mitigate risk. BCIS was recognised at the Engineering Matters Awards 2024 with The Net Zero Champion Gold Award for its leading role in the development of the Built Environment Carbon Database. BCIS is shortlisted for Insurance Partner of the Year - Technology at the British Insurance Awards. www.bcis.co.uk

About the PHCPI

The BCIS Private Housing Construction Price Index is a measure of the prices paid by housebuilders for constructing houses/flats, i.e. changes in the costs of direct/subcontracted labour, plant and materials, overheads and profit attributed to the construction, but excluding the cost of land and other development costs and any development profit.

A range of small, medium and national housebuilders are surveyed each quarter to identify the change in prices paid for constructing a standard house type. Contributors are also asked to provide their expectations for price changes in the following quarter and the mean of these projections is published as a forecast for the current period.