Renovation costs in a recession

propertyhunter

Does anyone know what happens to building costs during a recession induced by higher interest rates? I'm just wondering whether costs will keep going higher, or fall as interest rates go higher and people put their plans to extend on hold and divert those funds to paying off the mortgage?

I'm budgeting for an extension and refurb in 3 years' time, but wondering whether costs will go higher than inflation, or be in line with it. Does anyone have experience of what happened in the 1980s/early 1990s when the economy was in a similar predicament?

FreeBear

Material costs are heavily linked to energy prices and global demand - I don't see either causing prices to drop. Trades have got use to charging "premium" rates, so I doubt many will be reducing their charges. So overall, I don't think you will see a downward trend.

plumb1_2

To quote Jazz, the only way is up.

Gavin83

I'm not really sure I agree with the two posters above. Building work is no different to any other market, it's based on supply and demand. There's been a huge demand for tradespeople recently so they've effectively been able to charge what they want. As people have less and less money, with the money they do have being focused on other priorities this demand will drop. If we get to the point where there's less work available and tradespeople are competing for work then it's inevitable that prices will drop as price will be the obvious element to compete on. Whether we'll reach the point we'll need to see.

House prices will affect tradespeople too. The more house prices drop and the more tradespeople increase prices the more people will scrap their idea for an extension and will move instead.

I expect we'll reach the point where tradespeople will have no choice but to drop their prices.

cymruchris

Gavin83 said:

I'm not really sure I agree with the two posters above. Building work is no different to any other market, it's based on supply and demand. There's been a huge demand for tradespeople recently so they've effectively been able to charge what they want. As people have less and less money, with the money they do have being focused on other priorities this demand will drop. If we get to the point where there's less work available and tradespeople are competing for work then it's inevitable that prices will drop as price will be the obvious element to compete on. Whether we'll reach the point we'll need to see.

House prices will affect tradespeople too. The more house prices drop and the more tradespeople increase prices the more people will scrap their idea for an extension and will move instead.

I expect we'll reach the point where tradespeople will have no choice but to drop their prices.

I would think along similar lines.

There are X amount of tradespeople who have Y amount of hours available.

The good ones currently have more demand than hours available.

If the demand for work drops - then there are still X amount of tradespeople and Y amount of hours available - so logic would state that if we got to the stage where X weren't able to sell all of Y, then the price of Y would have to drop in order to stimulate the demand so that as many of those hours as possible were sold.

Demand and supply - currently more demand than supply - when that changes to more supply than demand - there should be some downward movement (if we get to that stage that is). 

Doozergirl

The trouble with the supply
and demand model is that we have a massive shortage of skilled labour in this country and a terribly ageing workforce, particularly in the domestic sector.  

There are huge infrastructure projects gobbling up labour and the number of people to do the work seems to be falling. 

It's so hard to recruit into the industry.   We're desperate for immigration, frankly.  

mi-key

Things are different now. When people have less money they are more likely to stay where they are, but extend it, so it creates more work for builders. 

A recession only really effects people who are already struggling or very close to it. For the rest of the population unless they lose their jobs, it doesn't make a massive difference. This tends to make it worse for renters or those in cheaper properties they have just bought. For people with a lot of equity they can use in their house, or on long term fixes then 

The current trend is to extend your house rather than move. Look at how popular brick built garden rooms have become. I know a few builders and they are booked up for the next year just doing those and are still getting queries for them every week.

Yes, they may get quieter, but when they have so much work they are turning down, then they will always be people who do have the money to book them, so I can't see them reducing prices.

As Doozergirl says, builders are having to turn down work because they are so busy due to a lack of workers. We lost a lot of skilled workers with Brexit, and it is harder than ever for workers to come over here so why would they bother when they are free to work in the EU.

TimSynths

plumb1_2 said:

To quote Jazz, the only way is up.

Ahem *Yazz*

mi-key

The other thing is with inflation, it is going to drop, but that doesn't mean things will get cheaper, they just won't go up in price as quickly as they have been.

We aren't in a recession, or even that close to one yet despite the media seeming determined to create one !  Fuel and house prices have already dropped, and food wholesale prices have come down a lot. It takes a while to filter through.

My prediction is we will see inflation fall month on month ( in real terms it already is ). the BoE are going to stop raising rates soon as they realise it is making no difference at all 

FFHillbilly

mi-key said:

the BoE are going to stop raising rates soon as they realise it is making no difference at all 

they said that in April at 4% didn't they?
my prediction is all previous predictions will turn out to be wrong because you can't predict the future!

propertyhunter

This is why wondered that if interest rates get any higher, people will redirect money into paying off the mortgage or moving, rather than redeveloping, especially in London where refurbishments with a rear single-storey extension can be £150-200k for the ground floor and then there's the whole upheaval of the building work.