Max Wilkes of Davis Langdon revisits affordable homes, extra-care homes and nursing homes to find out what effect changes in regulations and tender price deflation have had on the sums
01 / Market conditions
In the past year new orders have declined rapidly, and tender prices have followed them down. Every updated forecast seems to deepen the gloom a little more; for example the Ðǿմ«Ã½ Cost Information Service’s (BCIS) tender price forecast for this year was amended from –9.5% to –11.6%. However, it has so far maintained its forecast of a fall of –2.8% for the 12 months to the fourth quarter of next year.
Davis Langdon’s tender price index has also been revised recently. This shows a 15% fall from the top of the market, which was reached in the second quarter of last year. In contrast to the BCIS, we predict that prices will fall about 6% during 2010.
In the 12 months to June 2008, new-build construction output fell 14%. The autumn 2009 forecast from the Construction Products Association (CPA) suggested that this trend will continue to the end of the year; it predicted an overall fall of 15% in new-build output during 2009.
The steepening fall in output has been driven by a worse than expected performance by the industrial and commercial sectors. However, there are some sectors that seem to be bucking the trend, with the Office for National Statistics reporting rising orders for public sector housing in the three months to August. Similarly, infrastructure and public non-residential also remain strong.
However, owing to the structural deficit in the government’s finances, cuts in public sector spending are likely to begin as early as next year. Overall, it remains to be seen how the cuts will affect large-scale strategic programmes in education and the health sector, but investment in public housing has been brought forward as part of the government’s 2009 stimulus package, so investment here will definitely fall after 2010.
According to the BCIS and the CPA, new-build output is likely to fall again in 2010 although at a slower rate. The BCIS forecasts another fall of 2% between quarter three last year and quarter three this year before growth returns in 2011.
The recession has, of course, influenced prices for construction obtained in competitive tenders. Comparing recent bids with tenders received in the fourth quarter of 2008, the median price of a half-brick wall has fallen 11%. In situ concrete has slipped 20%, and both A252 reinforcement mesh and 140mm blockwork has reduced 23%. The cost of fabricated universal steel sections has fallen furthest, with the rate, including erection, down by more than 25%