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I grew up in a builder’s household, so none of this is theoretical to me. My dad’s business lived and breathed the knock-on effects of every labour shortage, every material spike, every change in government policy. And 2026 is shaping up to be another one of those years where external pressures will test even the most organised building firms.

Industry forecasts show that construction costs will continue rising through 2026 – driven by labour shortages, volatile materials markets, regulatory pressures and a predicted rebound in demand. For large contractors, this is challenging. For small and medium-sized builders, it can be make-or-break. Here’s what forecasters can see coming, and what I believe you can do to protect your business.

1. Labour costs will keep climbing

Skilled trades remain in short supply, and that isn’t easing any time soon. Wage rises, National Living Wage increases and changes to National Insurance will all feed into higher labour costs. Many contractors will also build in risk premiums to cover recruitment difficulties and retention incentives. For small businesses, even small increases can erode profit quickly.

2. Material price volatility Isn’t going away

Steel, cement, aggregates and other essentials continue to fluctuate with global commodity movements. Transport and logistics still carry a premium, and while stock availability is improving, geopolitical instability and climate-related events can change that overnight. For smaller builders, materials are generally the biggest single outlayAs they don’t generally buy at volume, this volatility hits particularly hard.

3. A rebound in demand will push tender prices up

After a quieter 2024–25, demand is expected to recover. Arcadis, the engineering consultants, predict buildings inflation of 5-6% and infrastructure inflation of 4-7% from 2026 onwards. If many projects come online at once, contractor capacity will tighten – and tender prices will rise. Smaller builders who aren’t prepared could find themselves priced out or underpricing to win work.

4. Compliance and regulation will add costs

New building safety requirements, environmental standards and digital compliance expectations (including evidence-based tracking) will continue to add complexity and overhead. Even for smaller residential projects, clients and inspectors will increasingly expect clear documentation and proof of compliance. To note, the Future Homes Standard will be introduced in 2026. This will require homes to meet higher energy efficiency and reduced carbon emissions.

5. Housing targets and public investment create regional pressure

The government’s goal of 1.5 million new homes by 2030, alongside wider infrastructure investment, will stimulate demand in some regions more than others. Where capacity is already stretched, we can expect prices to rise fastest. As a small builder you need to be ready for the fallout.

6. Broader economic conditions still matter

General inflation – sitting at 3.2% as I write – affects everything from insurance to energy to finance. Access to capital will influence developer behaviour, which in turn affects the size and timing of the jobs available to SMEs.

What this means for small builders

If you run a small building company, 2026 won’t be the year to rely on guesswork. Margins will be tight, client expectations high, and mistakes costly. But with the right processes, it is possible to navigate this environment with confidence.

Where HBXL can support you

At HBXL, our mission has always been to help small builders work smarter, protect their profit and reduce risk. Whether it’s accurate estimating, reliable project management, health & safety compliance or clear client contracts, our tools are designed to take pressure off you – especially in times like these. Construction cost inflation is a very real problem. If you want to shore up your pricing, control your costs and feel more prepared for what’s ahead, we’re here to help.

Select a date and time for a 15-minute call. Trial our estimating software, CAD software, Health & Safety software or job and task management software. Or leave us to do the all-important quoting for you – just ask. Or enquire about our business-changing Construction Skills Bootcamps where we talk inflation-beating quotes and future-proofing your building contracts to help you build in flex when prices rise.