Will the climate suffer because of build cost inflation?

In these unsettling times, build costs are rising at the fastest rate for decades. Will the climate suffer because of it?

Natural environment. Will the climate suffer because of build cost inflation? PRP | BTR News

These are unique and unsettling times. Brexit, Covid and the terrible war in Ukraine are all contributing to a spike in inflation, much of which is being borne by the construction sector. Build costs are rising at the fastest rate for decades, driven by labour and material shortages, energy prices, high demand and sub-contract supply inflation. Compounding this further, viability models are being squeezed by emerging regulations, compliance requirements and static land values. Everywhere costs are under pressure. Historically, these market conditions have led developers to drive out ‘unnecessary’ costs in a search for efficiencies. So will the climate suffer because of it?

By Craig Sheach, Partner at PRP

Conversely, in order for us to tackle the climate emergency, we are required to do more than the minimum, more than the just necessary. The more energy we save the better, the more materials we can recycle or re-use the better, the more alternatives to car usage we can provide the better. In essence the more effort we put into reducing our impact on the climate now, the less impact our past profligacy will have on future generations. And now, at the point where our moral imperative is to do more for the environment, the natural desire will be to do less.

The unique aspect of Build to Rent over open market sale homes is the stewardship of the investor and the long-term hold of the building. This simple but key fact changes the way that a development is viewed. Long term efficiency can be more important than short term capital gain. That means a more holistic view of specification focusing on robustness, reduced labour and materials within maintenance programmes, reduced overheads and yes, environmental credentials.

Reduction of energy and water usage over the long term is a positive for the environment. Greater thermal efficiency, a passive and positive approach to designing out overheating, good detailing to increase air tightness, grey and black water recycling, low energy fixtures and fittings etc all help reduce our demands. Great for the environment but also for the investors’ balance. Lower overheads create lower rents. Lower rents mean better uptake.

Increasing the lifecycle of building elements and facilities reduces waste and carbon usage while extending maintenance and replacement cycles. Using materials that can be recycled and re-used supports the circular economy and makes good fiscal sense. Operational and replacement costs matter in the same way that utility costs do.

There is an obvious case for going for more than the minimum in thermal performance, energy efficiency, water saving and robust materials and systems but this ignores the fact that capital expenditure on a building programme is a mere fraction of its operational expenditure over the life of the building. And what about the wider sustainability of the project? During ‘value engineering’, landscape is normally one of the first ports of call in seeking cutbacks. But reducing species, amount of planting, durability of surfacing materials and street furniture or size of trees being planted (and therefore its propensity to survive the first season) decreases biodiversity and the general sense of wellbeing of residents.

In essence, bare minimum compliance for environmental standards navigates the planning and building regulation hurdle now but could be a heavy cross to bear for the lifespan of the development. The very people who Build to Rent most appeals to are those most likely to select a home, in part, by its environmental credentials. This will only become more important to them as the years pass and the environment worsens and, as we know, retrofitting buildings is an expensive and carbon intensive process. Can doing more, not less, for the sustainability of Build to Rent buildings now make good business sense in the future?

This construction cost crisis will hopefully pass in a year or two, whereas the climate emergency will remain, greater than before and harder for us to address. Efficiency is important to weather this current storm, but surely not at the cost of the planet, or potentially the long-term attractiveness of developments.