Beyond the headline figures lies a more complex reality shaping public housing in construction. Turner & Townsend's data reveals why contractors are becoming increasingly selective about projects, what's really driving tender price forecasts through 2028, and where the £39 billion investment creates the most immediate opportunities for strategic players in the market.
Labour Costs Outpace Materials: The New Reality for Construction
Turner & Townsend's latest data shows average weekly earnings in construction increased by 6.9% in the year to November 2024. This surge comes ahead of the National Living Wage rise to £12.21 per hour in April 2025, placing additional pressure on contractor margins already stretched thin.
Martin Sudweeks, UK managing director of cost management at Turner & Townsend, warns that "unless contractors can pass on these higher labour costs in their tender prices, we can expect further erosion of their already-low margins." The report forecasts that tender price inflation for real estate will remain at 3.0% through 2025, with infrastructure costs rising to 5%.
Material cost inflation has moderated significantly since peaking in 2022, but labour shortages continue to intensify. The Construction Industry Training Board estimates the sector needs an additional 251,500 workers by 2028 to meet demand, creating fierce competition for skilled tradespeople.
Public Housing in Construction: Government Investment Creates Opportunity
While private housing faces headwinds from elevated mortgage rates, public housing in construction is experiencing a transformative shift. The UK government's £39 billion Social and Affordable Homes Programme represents the biggest cash injection into affordable housing in 50 years, according to Chancellor Rachel Reeves.
This 10-year programme aims to deliver 300,000 new homes from 2026 to 2036, with at least 60% allocated for social rent. The annual funding averages £3.9 billion, more than doubling previous investment levels and providing unprecedented certainty for housing associations, local authorities, and developers.
Despite recent quarterly declines in public housing output (down 7.8% in Q4 2024), industry experts anticipate strong growth driven by government-backed investment. The programme addresses a critical need, with over 1.3 million people on social housing waiting lists and 165,000 children living in temporary accommodation.
How Rising Labour Costs Impact Public Housing Projects
The intersection of labour inflation and ambitious public housing targets creates both challenges and opportunities. Housing providers now face a dual mandate: increase output while managing rising construction costs.
Key factors affecting public housing in construction delivery include:
Skills Shortage Pressures: With construction employment down 10.8% since the pandemic, competition for qualified workers drives wages higher. Skilled trades command significant premiums, making project cost estimation more complex.
National Insurance Changes: Employer contributions jumped from 13.8% to 15% in April 2025, while the earnings threshold dropped from £9,100 to £5,000 per employee. These changes particularly impact labour-intensive public housing projects.
Thin Contractor Margins: Turner & Townsend warns that margin erosion increases insolvency risk across the supply chain, potentially hampering project delivery timelines.
Tender Price Inflation: What to Expect Through 2028
Turner & Townsend forecasts show tender price inflation will remain elevated despite easing material costs. For real estate projects, inflation is expected to hold at 3.5% from 2026 to 2028. Infrastructure projects face higher rates at 5% through the same period.
These forecasts reflect persistent labour market tightness rather than material volatility. Construction output grew 0.5% in Q4 2024, marking three consecutive quarters of expansion, but new orders fell 2.4% in the same period, suggesting caution among developers.
Maximizing Value in Public Housing Development
To succeed in this environment, stakeholders in public housing in construction should prioritize:
Early Contractor Engagement: Securing skilled contractors early helps manage both cost and timeline risks in a competitive labour market.
Strategic Procurement: Robust pre-qualification processes minimize supply chain disruption risks while ensuring competitive pricing.
Skills Development Partnerships: Collaborating with training providers addresses long-term workforce needs while building local capacity.
Risk-Sharing Models: Public-private partnerships and regulated asset base models can attract investment while distributing project risks more effectively.
The government has committed £625 million between 2025-26 and 2028-29 to train up to 60,000 construction workers, supporting industry capacity building.
The Path Forward for Public Housing Construction
While labour inflation presents real challenges, the £39 billion Social and Affordable Homes Programme positions public housing in construction as a growth driver for the broader sector. The 10-year funding horizon provides rare certainty, enabling strategic planning and attracting institutional investment.
Turner & Townsend's analysis suggests that addressing workforce constraints must be the sector's top priority. With government investment providing a platform for growth, companies that invest in skills development, embrace collaborative delivery models, and maintain rigorous cost controls will be best positioned to capture emerging opportunities.
The construction industry's ability to deliver 300,000 affordable homes over the next decade depends on solving the labour equation. Those who act now to build workforce capacity and establish strategic partnerships will lead the public housing renaissance.
Stay informed with Necto Selection.
At NECTO Search & Selection, our mission is to connect talented construction professionals with opportunities that can transform their careers. Whether you're looking to advance professionally or aiming to enhance your team with top talent, we are here to facilitate your journey to success.
About NECTO Search & Selection
NECTO Search and Selection specializes in recruiting white-collar construction professionals throughout the Island of Ireland. The firm comprises knowledgeable consultants who connect candidates with appropriate clients through a targeted matching process. With relevant construction qualifications, site experience, and over ten years in recruitment, the team focuses on specific roles including quantity surveyors, estimators, buyers, contracts managers, project managers, site managers, site engineers, civil engineers, health and safety/SHEQ/HSEQ professionals, planners, and design managers.
Email: info@nectoselection.com
Belfast: +44 (0) 2890993234
Dublin: +353 (0) 15766667
