Research into construction costs in Scottish social housing
The Executive has published a research project undertaken by Davis, Langdon and Everest entitled 'Analysis of historical construction cost movements in Scottish social housing'.
The requirements of the project, set out in section 1.2 of the published report, were to: identify historic trends in construction costs, establish the key indicators in predicting the change in construction costs and assess how these key indicators will affect future levels of construction costs in Scottish social housing.
The report investigated over 100 cost and price index series from both public and private sector sources providing information on movements in construction, building and maintenance costs and tender prices in the UK to try and identify those most appropriate to construction and maintenance costs in the Scottish social rented sector.
The report finds that construction tender price indices - the key indicator in construction costs - generally follow a cyclical pattern correlated with the business cycle. Within the overall cost profile construction firms have been able to offset relatively high increases in labour costs through greater productivity from both their materials and labour inputs. This has meant fewer resources are now required to produce a given level of output than was previously the case.
Across the 17 years covered by the report (1985-2002) the evidence suggests that real tender prices have remained stable with a slight downward drift. Over the shorter term though tender prices have been cyclical, rising during periods of construction expansion and falling during periods of contraction. These short term movements have tended to mirror movements in the economic cycle. Tender price movements in Scotland have shown a similar but less amplified pattern.
Considering the profile of tender prices in more detail, the price rises of the mid 1980's were replaced by sharp reductions during the recession at the end of that decade. Since then tender prices have generally been on an upward trend in both Scotland and the UK as a whole, in line with the economic recovery. The increase in real tender price indices is on a trend to bring them back up to the levels seen in the mid 1980's.
These findings suggest that over the 30 year lifetime of a housing business plan costs should only rise in line with general inflation.