As the cost of building materials continues to increase, is it still possible to make a profit out of a renovation project or are we seeing the end of the doer-upper?
For decades it’s been accepted that buying a property and doing it up is an easy way to make a profit. In London, it’s a no-brainer. Adding a loft bedroom is said to add as much as 25% to the value of a terraced house, while kitchen extensions and garage conversions are expected to recoup their costs in the long term. But do these assumptions still hold true in 2022?
The cost of building work has increased rapidly over the past two years and increasingly, these commonly held beliefs are being challenged. In fact, in 2022, the cost of raw materials in the UK is expected to more than treble, according to the Building Cost Information Service (BCIS) Materials Cost Index. Add to this the labour shortages caused by Brexit, and we could be looking at a whole new situation in which house prices simply can’t keep up with the escalating costs involved in any building work.
James Fiske of BCIS explains: “The cost of materials in constructing a three-bedroom, semi-detached house has increased by 14%, or approximately £7,300, between January and September 2021," said. "It is expected to grow by a further 1%, or £600, by the end of 2022." He believes that the pressure on materials prices and availability will continue at least until the end of 2022.
However, Steve Brown of Winkworth Blackheath believes that buyers are still willing to pay a premium in order not to have to embark on building works themselves, and that property values are about to adjust to the new building costs. He says: “With the recent increases in the price of labour and materials, the cost of making improvements to a property has risen significantly. As this is a very recent issue, the price increase after a refurbishment or extension in many cases haven’t filtered through to an uplift in value of the property. However, this is starting to happen and over the coming months we expect to see the values of properties that have undergone improvement works to reflect the actual cost of the investment. With rising costs forecast, the market will understand the value of buying a home that has already had the works done and is ready to move into.”
Of course, there will always be people who are prepared to spend whatever it takes to create a home that is finished to their tastes. Brown says: “I do believe buying doer-uppers is still a good idea and in theory buyers will have more choice as many others will not want to take on the works with a shortage of labour or materials.” In short, the doer-upper is not dead, but it’s more important than ever to keep a tight hold on your budget. Renovations are not for the faint-hearted – but that has always been the case. It seems that increased costs aren’t holding people back.