Labour costs in the construction sector are rising rapidly, with average wages having increased by around 10% year-on-year in the second quarter of 2025. Site workers recently received a statutory pay rise of 3.4%, with additional negotiated increases adding further pressure on developers. These higher wages are a key factor driving up the cost of building new homes, compounding the existing housing crisis.
At the same time, supply constraints remain severe. Planning approvals are slow, development levies are high, and there is a persistent shortage of skilled tradespeople, including carpenters, plasterers, and engineers. These shortages force employers to offer higher pay just to retain staff, which feeds directly into the cost of every home built.
Originally, the Government had proposed introducing a Living Wage for sectors including construction by 2026, which would have added further wage pressure. However, this plan has now been pushed back to 2029. While this delay eases immediate pressure on wages, the ongoing increases in construction pay combined with labour shortages still mean that building costs are rising, and developers may either scale back projects or pass costs onto buyers and renters.
Forecasts for housing completions are being revised down, with fewer homes expected to come onto the market in 2026 and beyond. Rising labour costs risk undermining initiatives under the National Development Plan, including affordable and cost-rental housing targets. Without intervention—through planning reform, subsidies, or targeted incentives—the gap between what people can afford and the cost of homes is expected to widen.
In short, even with the Living Wage pushback to 2029, the combination of higher construction wages, limited supply, and slow approvals suggests the housing crisis will likely intensify, with higher prices, fewer new homes, and more households struggling to rent or buy.
