The construction business is going bankrupt at its fastest rate in a decade, pushing the number of company bankruptcies to its highest level since the financial crisis.
Rising material costs, staff shortages, and declining consumer demand are weighing on companies, forcing them to cut their margins to unsustainable levels.
Official figures show that in the second quarter of this year, business bankruptcies in England and Wales reached their highest quarterly level since the third quarter of 2009.
In the first half of the year, the insolvency department registered 10,717 bankruptcy companies.
The construction sector accounted for a fifth of these companies, with 2,094 companies going bankrupt.
The industry saw 1,048 bankruptcies in the first quarter of the year, the highest level since the same quarter of 2012.
The industry, which accounts for about 7% of the economy, is particularly vulnerable to high inflation because companies often operate on slim profit margins.
Building materials typically make up 20-25% of the cost of most construction projects, and prices for basic materials, including timber and steel, have also risen over the past year.
According to figures compiled by the business department, the cost of steel billets rose 17% in the year to October.
The cost of bricks and bricks increased by 18% and the cost of timber increased by 19%.
A recent report from the Association of Master Builders found that the vast majority – 90% – of its members have been hit by higher costs over the past year.
They also struggle with a shortage of key personnel, including labourers, carpenters, carpenters and masons.
In a sign of Britain’s economic malaise, builders said they were struggling to afford these costs as clients were withdrawing projects and refraining from commissioning new ones.
Local builders most at risk
Smaller domestic builders are particularly vulnerable because they are less able to take advantage of economies of scale, so they are more vulnerable to a sharp rise in costs.
It makes the feasibility of some projects very difficult, inasmuch as we have to compile our financial valuations well in advance of bidding,” said Mark Wigley, managing director of Osprey Homes, a builder of small to medium sized homes in Hertfordshire. Less than 12 months.
“House prices are increasingly out of line with our material costs increases.
“And as a result, developers really incur a lot of extra costs that we find very difficult to absorb through our day-to-day business.”
He warned that small firms were at the end of the acute crisis because they are less able to benefit from economies of scale.
“If we are not careful, then the houses will only be built by the big urbanites who are really only interested in these huge development sites,” he said.
“So these small plots of land, where we can prove high quality, will cease to exist.
“We employ a lot of people in the construction industry and the economy in general.
“So the ripple effect of whatever happens to our industry is very important.”
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