As Allan Callaghan, managing director of Cruden Building, notes, global supply chain issues that affect a wide range of industry sectors also affect construction. At the same time, securing contractor resources has also become more difficult.
“The construction industry as a whole was one of the first industries to really grasp the risks posed by Covid-19. The unions were also very responsive, but none of that could do much to counter the subcontractor and supply chain issues that were a consequence of Covid-19,” says Callaghan.
While the headline inflation rate today is around 5.5%, he points out that the combination of Brexit issues and supply chain issues means the construction industry is in fact struggling with inflation closer to 10% and higher, with some items as high as 50% higher due to a combination of increases in raw materials, fuel and transportation, etc.
“There are signs that it is starting to calm down. There is clearly an element of opportunism on the part of suppliers looking to recoup any losses they may have suffered during the Covid-19 lockdown and downturn.
“However, we must also consider the increases we are seeing as we and the industry seek to raise technical and performance standards, reduce our carbon footprint and increase the sustainability of the homes we build,” he comments. -he.
There is a cost associated with developing new, more environmentally friendly materials and procedures. The challenge for Callaghan and his colleagues, and for the industry as a whole, is to find ways to keep the cost of affordable housing within reason while meeting and exceeding new building regulations.
“The goal is to treat all of these material and procedural improvements as a background and as a program for positive engagement with our customers’ requirements,” he notes.
Of course, if homebuilders are hit with a surprise inflationary price hike while a project is halfway through, they will be at a serious disadvantage. They will have already agreed prices with the customer and have nowhere to go. However, Callaghan points out that some customers are realistic and understand the difficulties new projects face.
“Today, when we meet clients at the start of new projects, they positively engage with us. The bigger picture is that Scotland leads the world in what we are trying to achieve with our net zero targets. We have a huge problem in this country with energy poverty, so clearly we need to improve the ability of new homes to retain heat and reduce energy demand. We also want, where possible, to meet energy and home heating needs from low-carbon solutions,” he says.
Cruden is currently working on a number of projects that tackle this, for example, which are designed to achieve net zero carbon or achieve Passivhaus accreditation “Building to higher environmental standards and doing so with tight funding is a challenge. We are very active and innovative, but there are cost and financial implications,” he notes.
One of the challenges to overcome is the mismatch between the impact of low-carbon and sustainable construction methods on the funder and on the tenants. “Tenants benefit directly year after year when you build in a way that lowers their fuel bills.
However, the funder, be it a council or a housing association, has to bear a higher capital cost and does not share in the profits that accrue to the tenant.
“There is a dislocation between the capital costs of low-carbon heating and better house insulation, and the income benefits. The question for developing owners, the homebuilding industry and government is to find answers on how to recognize and deal with this dislocation,” he comments.
However, he adds that the response from local authorities and housing associations has been very positive so far. “They are looking ahead and they can see that investing in their housing stock now will put them in a better position in a few years,” Callaghan said.
A silver lining in all of this is that as increased build specs become the new norm and building with a lower carbon footprint becomes the norm, costs may well come down.
However, homebuilders like Cruden face the fact that they must invest now in the parts of their business that will allow them to meet the new standards.
“In a sense, there is nothing new in this. The bar is still on the move, under construction, and now it is moving again to a new level of innovation, and we all have to react accordingly”, he comments.
The obvious analogy, he points out, is with automobiles. Cars are constantly receiving new features and innovations, often with the aim of making driving safer. Initially, these are expensive additional elements or only on the most expensive models. However, over time they become the norm
“If you go back ten years, solar panels, for example, were much bigger and more expensive than they are today and were also much less efficient. Today they are smaller, more efficient and much cheaper. So sustainability doesn’t necessarily mean that costs continue to skyrocket. However, as things stand, sustainable heating, off-site panel fabrication and efficient insulation all have cost issues associated with them,” he notes.
With all these improvements, there is a cost side and a value side of the equation and both parts need work, notes Callaghan.
“Sustainability is the key to all of this. We go beyond current building standards and look at things like heat pumps, which are outside of current technical building standards. We are also looking at factors such as on-site vehicle charging as the government seeks to push the use of electric vehicles,” he says.
The British and Scottish governments are looking to move beyond gas as a source of domestic heating and hot water. Hydrogen is on the horizon as a possible fuel of choice.
“We must constantly anticipate. One of the big challenges today is what will happen after 2025 when gas is phased out as a heating fuel? Battery technology is one of the answers we’re looking at, but hydrogen is definitely in the mix.
“Home building today is more dynamic than it has ever been and we need to be able to respond,” he comments.
This article is brought to you in collaboration with Cruden Building.