Householders rethink home improvements as living costs bite

A decorator recently came around to quote for some painting work on our house. He was pretty flexible about when he could do the job. “I’m coming to the end of two and a half years of boom time,” he said gloomily. “People were pouring money into home improvements because they couldn’t have holidays or go out during lockdown — but inflation is putting paid to that.” 

There are clear indications that consumers are having to curtail their plans as household budgets are increasingly stretched. Nationwide’s monthly spending reports show that outlay on home improvements and do-it-yourself fell by 7 per cent in June and 8 per cent in July, compared with 12 months earlier.

But there are also powerful inflationary pressures at work in construction and home improvements, as labour costs rise and material prices rocket.

The government’s latest monthly round-up of the prices for Building Materials and Components shows the price of materials for repair, maintenance and improvement (RMI) jobs increased by 26 per cent over the year to June 2022. Particularly hard hit were concrete reinforcing bars, up a jaw-dropping 58 per cent, and structural steel, up 46 per cent.

Jim Parlato, a director of Browns Builders Merchants in Derby, adds that over the past 12 months, the price of cement has risen by 28 per cent, plasterboard by 30 per cent, copper pipe by 15 per cent and timber by 15-20 per cent.

He explains: “On the whole, building material manufacturers are heavy energy users and thus massively affected by price hikes in energy, as well as raw material shortages and other supply chain issues such as transport costs.”

Such price increases are too big for small builders to absorb, says Brian Berry, chief executive of the Federation of Master Builders (FMB). “More than 18 months of rising material prices have forced 81 per cent of small local builders to pass these increases on to their customers, as they cannot afford to absorb them into their bottom lines.”

For consumers planning substantial and potentially lengthy home improvement projects especially, the choices are stark in the face of upward cost revisions. They could delay and hope prices fall back as the economic slow down bites, cancel the work altogether, or scale it down.

Such difficult decisions are very much in evidence now, says Robin Chatwin, head of south-west London at Savills, the estate agents. “The combination of rising costs of materials, coupled with shortages and delivery delays is increasingly giving would-be renovators pause for thought,” he comments.

“Many homeowners can no longer do the extensive renovations they initially planned, as quotes may have escalated above budget, but in most cases they still plan to proceed with some form of home improvement — so a scaled-back, lighter refurbishment rather than a complete one.”

Adam York, a business owner living in south-west London, faced such a choice after plans for an architect-designed house renovation ran way over budget. “We went in with a very clear budget, but even after weeks of cutting back, the costing was still coming in at almost two and a half times what we wanted to spend,” he says.

York and his wife have scaled back their plans. Instead of employing an architect, they will manage and design the job themselves, using independent tradespeople.

“We’re still going to do the kitchen and bathrooms but we’re not taking the roof off or doing the dormer extension, and we’re not going to move out while the work’s going on,” he explains.

What about the risk of rising prices filtering through in the course of the work? “I don’t think it’s such a problem when you’re working with a range of different tradespeople, because they give a quote for a particular job that’s good for a set period,” York says.

However, other customers are more worried about the risk of shifting expenditure goalposts as costs increase. John Newcomb, chief executive of the Builders Merchants Federation, reports that materials inflation is pushing consumers to demand price guarantees if they go ahead with planned work.

“As consumers tighten their belts and become increasingly unwilling to enter contracts without a firm commitment to the end price, SMEs are experiencing a drop off in inquiries and contracts. A reduction in the volume of work will add to the pressures faced by SME businesses,” he warns.

So far, housebuilders and larger contractors have not been so badly affected. But, says Newcomb, “they share the entire market’s concerns over rising energy costs and interest rates, and tight labour availability”. 

He expects the likelihood of ongoing price rises to result in contractors across the board making greater use of more flexible quotes, with “appropriate contractual mechanisms such as index-linked, cost-plus, provisional sum, etc”.

At the FMB, Berry believes there are steps that could be taken to help keep homeowners renovating and building firms in business. “As cost-of-living pressures grow, practical steps such as removing VAT on all RMI [repair, maintenance and improvements] work would help sustain a pipeline of work for builders,” he argues.

There is an additional worrying aspect to the trend of scaling back or holding back on home improvement projects, which is the potential impact on the urgent need for people to make their homes more energy-efficient. Again, VAT could provide an incentive for consumers to go ahead with this kind of green renovation work, says Ian Fletcher, policy director at the British Property Federation. “For a number of years, the BPF has called for the government to introduce a VAT exemption for these works.”

Kingfisher, owner of B&Q, estimates that householders will pay an average of £1,730 yearly for energy from October 1 because their homes are inefficient.

Buy-to-let landlords are in a particularly acute position: they have to reach minimum efficiency standards by 2025 if they are to let their properties on new or renewed tenancies. They could be forced to invest in improvements despite the rising costs.

Fletcher says more radical proposals, such as reform of stamp duty, homeowner grants and council tax rebates could also be implemented to increase incentives for homeowners in general to make their properties more energy efficient. “Now is the time for the government to look again at these ideas.”

In the meantime, though, it seems that building contractors and tradespeople face the prospect of a tough winter: they are caught between the rock of rising prices and the hard place of increasingly cautious customers.