Construction labour shortages, rebuild costs, and the underinsurance threat

UK insurance brokers are facing several challenges in 2025. Many buildings are still underinsured, and a shortage of construction workers is making things worse. With fewer skilled workers available, rebuilding costs are rising and projects are taking longer to finish. These changes are affecting how properties are valued and how much insurance costs. This report looks at the current state of construction jobs in the UK, how the worker shortage is increasing rebuild costs for homes and businesses, and what this means for underinsurance and insurance prices.

Inaccurate building insurance in the UK: every 9 out of 10 buildings

Despite increased awareness, most UK properties are not accurately insured. Recent data shows about 76% of buildings are underinsured and 20% are overinsured. In practical terms, more than 9 out of every 10 buildings on a typical street are insured for the wrong amount. The root causes vary, but a major factor of underinsurance is property owners misunderstanding policy requirements – many assume market value is a suitable proxy for insurance, when in reality rebuild cost can be much higher. We go into detail on the differences between market value and rebuild costs here.

Misunderstandings are just one side of the coin. Even property owners who have a basic understanding of rebuild costs risk being underinsured due to outdated valuations. Consistent inflation alongside building upgrades (such as energy efficiency retrofits) contribute to rising rebuild costs that many have not accounted for. But what are the effects of labour shortages on rebuild costs?

Construction workforce shortages in the UK

Construction costs have surged in recent years, outpacing the adjustments in many insurance policies. While spikes in material prices (timber, steel, concrete, etc.) have grabbed headlines, an often overlooked factor is the shortage of construction labour. Fewer available builders and tradespeople mean higher wages and project costs, which inflate rebuild values.

The UK construction workforce today is markedly smaller than it was in the late 2000s. In fact, as of early 2025 the total construction workforce is around 365,000 workers fewer than in the same period in 2008. Several converging trends have led to this decline:

• Demographics: The industry’s workforce is ageing, and retirements are accelerating. Over one-third of skilled construction workers are expected to retire in the next decade. A recent Trade Skills Index report estimated the sector will need up to 1 million new workers over 10 years just to meet demand and replace those leaving. Unfortunately, not enough young people are entering construction trades to fill this gap, partly due to waning interest in manual trades among younger generations.

  
  

• Training pipeline issues: Years of underinvestment in training have compounded the problem. The closure of specialist trade colleges and a decline in apprenticeships mean fewer qualified entrants. Only about one in five construction firms employ an apprentice today, with small and medium contractors often citing a lack of capacity and excessive bureaucracy as barriers to training new talent. This weak pipeline has created a skills vacuum that the industry has been warning about for years.

  
  

• Brexit and reduced immigration: Historically, the UK relied on migrant labour to bolster construction crews. But post-Brexit immigration rules and the pandemic led to an exodus of foreign workers. Around 1.5 million foreign workers left the UK in 2020–2021, many of them from construction roles. New immigration restrictions and recently proposed limits on skilled worker visas threaten to tighten this labour supply further. Trades like bricklaying, roofing, carpentry, and plumbing are now officially on the government’s occupational shortage list, underscoring how reliant the industry had been on overseas talent.

  
  

• Economic Cycles: The construction job market has seen ebbs and flows. After the post-pandemic building boom, higher interest rates and economic uncertainty have cooled construction activity somewhat. Employers have become cautious with hiring – by early 2025, construction job vacancies fell to their lowest level since mid-2021. General unemployment has ticked up, and one in four firms are even planning redundancies amid rising costs. While a slower economy might temporarily ease labour demand, this is likely a short-lived breather rather than a true resolution of the skills shortage. The underlying issue remains: as soon as construction demand picks up again (as forecast in 2025 and beyond), there may simply not be enough hands to do the work.

The net effect of these trends is an industry struggling to maintain capacity. Even now, finding experienced builders, engineers, and trades specialists is a major challenge for contractors. The Construction Industry Training Board (CITB) reports that about 31% of construction employers cite difficulty recruiting suitably skilled staff as their top concern, especially as veteran workers retire faster than they can be replaced. In 2023, the industry managed to recruit roughly 200,000 new workers, yet over 210,000 workers left the sector in the same year – a net loss that highlights the retention problem.

Looking ahead, CITB forecasts the sector will need 251,500 additional workers by 2028 (50,300 per year) to meet modest growth in construction demand. Closing this gap will require concerted efforts by both government and industry.

Rising labour costs and rebuild cost inflation

A scarcity of workers doesn’t just show up in unfilled jobs or delayed projects – it shows up in prices. Labour shortages are now a key driver of construction cost inflation. With firms competing for a limited pool of skilled tradespeople, wages have been bid up significantly. Construction wage growth is running at multi-decade highs, putting upward pressure on the cost of any building work, including insurance-funded rebuilds after a loss.

In the first quarter of 2024, annual growth in the BCIS Labour Cost Index (which tracks wages agreed in the industry) peaked at 8.3% year-on-year – the highest increase in over 20 years. Although wage inflation cooled slightly later in 2024, it was still around 6% by Q3, far above general inflation.

Critically, these figures are averages; certain trades saw even steeper pay rises. Market data from Hays Recruitment indicates that mechanical and electrical (M&E) specialists and other skilled trades experienced the strongest wage hikes. For instance, skilled M&E trade wages were nearly 15% higher in Q2 2024 than a year prior – a staggering jump in labour costs in just 12 months. Plumbers and heating engineers likewise saw settlements in the 7%–8.2% range for 2024.

These gains reflect the premium commanded by scarce skillsets. As one construction cost analyst quipped, traditional craft skills like masonry, thatching, or stonemasonry have become “endangered species” – and when you can find them, they don’t come cheap.

Meanwhile, prices for building materials (timber, steel, cement, etc.) have moderated from the extreme spikes of 2021–2022, providing some relief on that front. But labour has now overtaken materials as the primary source of cost increases on projects.

Even with construction output temporarily subdued in 2024, contractors report that skilled labour shortages continue to inflate tender prices, especially for complex work. The British cost consultancy BCIS notes that mechanical and electrical work – vital in modern builds – now routinely carries a pricing premium due to capacity constraints and high demand. In essence, rebuilding a property today costs more largely because the people who do the rebuilding are charging more for their expertise.

Higher labour costs directly translate into higher rebuild costs for insurance purposes. Every component of a reinstatement – from bricklaying and roofing to plumbing, wiring, and finishing – is affected by rising wages. There’s also a secondary effect: project delays. A shortage of workers can stretch out construction timelines, which adds overhead costs and can compound the total expense of a rebuild. Industry experts warn that delays due to labour gaps will “drive up costs even more,” as contractors extend schedules and factor in the risk of scarce trades. All of this means that many insured buildings, valued a few years ago, would cost significantly more to rebuild at today’s rates.

Notably, these dynamics affect all types of properties. While news stories often focus on homeowners finding themselves underinsured, commercial and public buildings are equally exposed. Whether it’s a suburban house or a school or a factory, rebuilding it requires bricks, concrete, carpenters, electricians, etc – the fundamentals of construction. No sector is immune to labour-driven cost inflation.

A recent analysis of 355 commercial properties for insurance purposes found their declared rebuild values in total to be a whopping £1.17 billion below the true reinstatement cost. Such gaps illustrate how even businesses and institutions can vastly underestimate rebuild costs in the current market.

Impact on insurance premiums and coverage

For insurance brokers and underwriters, the construction labour shortage is not an abstract industry problem – it has tangible implications for insurance pricing and risk management. Higher rebuild costs inevitably push up the sums insured needed on property policies. If a building that was insured for £1 million now actually costs £1.3 million to reconstruct, the coverage limit must be adjusted accordingly to avoid underinsurance. When many properties nationwide see rising rebuild valuations, it follows that insurance premiums will rise as well, since insurers are covering larger potential losses.

We are indeed seeing this effect. Home insurance premiums in the UK have been climbing, and one reason cited is the soaring cost of rebuilding. According to GoCompare’s Home Insurance Index, the average combined buildings and contents premium jumped about 8.5% year-on-year by late 2024. The price of buildings-only cover rose even faster, reflecting insurers’ increasing costs for structural claims. GoCompare’s analysis pinpoints several drivers behind these rises – alongside weather-related claims, “rising rebuilding costs due to inflation, material shortages, and labour expenses have all played a role,” their spokesperson noted. In other words, homeowners are now paying more in premiums partly because bricklayers, roofers and other trades are charging more to repair or rebuild homes.

Commercial property insurance has similarly hardened. Insurers globally have been reassessing property rates upward to account for inflation in construction and repair costs. In the UK, underwriting experts have warned that average repair and rebuild costs for properties have leapt by double-digit percentages since 2022, with skilled labour costs rising sharply as a contributing factor. For high-value and specialised properties, some insurers have begun imposing stricter terms or requirements for professional valuations to ensure the sums insured are accurate despite the volatile cost environment.

For clients, the combination of underinsurance risk and premium increases creates a difficult situation. Some property owners, faced with higher premiums, might be tempted to lower their insured values to save money – exactly the wrong response, as it increases underinsurance exposure. Others might simply be unaware that their coverage has not kept pace with current rebuild costs. This is where insurance brokers play a critical role in advising and protecting clients.

Bridging the skills gap

Addressing the construction labour shortage is now a national priority, tied not only to the health of the industry but also to the economy and housing supply. Both government bodies and industry organisations have launched initiatives to attract and train the next generation of construction workers. While these efforts are promising, they will take time to bear fruit, meaning high labour costs (and high rebuild costs) are likely to be with us in the near term.

On the government side, there’s a push to revitalise apprenticeships and vocational training. The UK government recently redirected funding toward trade apprenticeships and pledged to implement “workforce and training plans” for construction. Around £600 million has been allocated to upskill and attract talent, including 10 new Technical Excellence Colleges (£100m budget) and expanded construction Skills Boot Camps (£100m). An additional £20m is earmarked for partnerships between construction firms and colleges. The goal is to train 60,000 new construction workers in the coming years through these programs.

There is also a new governmental body, Skills England, set up in 2024 to identify workforce gaps and coordinate skills development, aiming to ensure major projects can be staffed without overly relying on foreign labour. These moves signal that policymakers recognise the severity of the skills shortage.

However, experts caution that these measures, while welcome, won’t resolve the shortage overnight. Training a construction professional takes time – for example, mastering a trade like bricklaying or electrical installation requires several years of apprenticeship and supervised experience. Simply increasing funding does not instantly produce experienced builders.

Moreover, some structural issues remain, such as the need to improve the industry’s image. Construction has suffered from a perception problem: a history of cyclical layoffs (e.g. the record number of contractor insolvencies in recent years) and stagnant wages up until the recent spike made it a less attractive career for many. Reversing this trend will likely require sustained investment and cultural change, not just short-term campaigns.

The private sector and industry groups are also stepping up. CITB, for instance, has invested hundreds of millions of pounds into training, diversity, and productivity initiatives – including a £267 million investment announced in 2024 to support new entrant training and improve the skills pipeline. Construction firms (especially larger ones) are forging partnerships with schools and colleges to promote construction careers, and there’s a drive to recruit more women and under-represented groups into the trades to broaden the talent base. Technological innovation, such as modular construction and automation, is another avenue being explored to reduce reliance on manual labour, though in the medium term, these are supplementary rather than wholesale replacements for skilled workers.

Policymakers are also keeping one eye on immigration policies. Given the immediate shortfall of skilled trades, some have argued for easing visa rules to bring in experienced workers from abroad on a temporary basis. Adjustments to the Skilled Worker Visa shortage occupation list have been made (for example, adding more construction trades to the list), which could help firms recruit bricklayers, carpenters, and others from overseas more easily. However, immigration is a contentious topic, and the government’s current stance is to prioritise upskilling the domestic workforce. If overseas labour remains underutilised, the industry will have to weather the skills crunch largely with home-grown talent – a challenging prospect in the short run.

The consensus outlook is that construction labour shortages will likely get worse before they get better. As overall construction demand is projected to recover and grow modestly in the next few years, the strain on the limited labour pool may intensify. Eventually, the new training initiatives and apprenticeship uptick should start yielding more skilled workers, perhaps later in the decade. But until then, brokers and insurers should anticipate continued upward pressure on rebuild costs. In this climate, vigilance against underinsurance is more crucial than ever.

How brokers can help clients mitigate underinsurance

Insurance brokers are in a unique position to help clients navigate this challenging environment of rising rebuild costs. By taking proactive steps, brokers can ensure their clients’ properties are adequately covered and avoid unpleasant surprises at claim time. Here are some key actions for brokers and risk advisers:

• Encourage regular rebuild valuations: Clients should regularly update their building’s reinstatement cost assessment to avoid underinsurance. What a property cost to rebuild just a few years ago may now be far too low. At RebuildCostASSESSMENT.com, we provide professional, RICS-regulated desktop assessments that are quick, affordable and insurer-accepted. As a guide, we recommend reviewing assessments at least every three years, or sooner if costs or the property change. Read more about validity here. Accurate valuations are the foundation of adequate cover.

  
  

• Educate clients on market value vs rebuild cost: Property owners may not realise that insurance cover should be based on rebuild cost, not market price. Brokers should take time to explain this distinction in plain language. For example, a client might think their £500,000 home purchase price is a safe insurance figure, not realising that if the house burns down, rebuilding it to modern standards could cost significantly more. Highlight that factors like debris removal, professional fees, and compliance with today’s building regulations (energy efficiency, fire safety, etc.) all inflate rebuild costs beyond the simple brick-and-mortar expense. Many older buildings, or those with bespoke features, would cost far above their sale value to reconstruct now – a point clients need to understand to appreciate the importance of proper coverage. More on this in our blog ‘Understanding rebuild cost vs market value’.

  
  

• Account for inflation and supply chain delays: In periods of high inflation, even recent valuations can become outdated quickly. Advise clients on the inflation provisions in their policies – for instance, “day-one” uplifts or index-linked sum insured adjustments. However, also caution that standard indexation may lag behind real-world cost spikes. The extraordinary cost surges of 2021–2023, for example, exceeded many insurers’ index rates, widening the underinsurance gap. If we enter another period of rapid cost increase, brokers might consider recommending higher buffers (perhaps insuring for 110% of the latest valuation) to ensure a cushion. Additionally, given labour shortages can slow down reconstruction, ensure that any business interruption cover or alternative accommodation cover has an adequate time limit – rebuilding might take longer than usual if contractors are hard to secure.

  
  

• Highlight the consequences of underinsurance: Part of overcoming client complacency is frankly discussing what could happen if they are underinsured. Use real examples: a business that could only partially rebuild after a fire because of a shortfall, or a homeowner who had their claim reduced in proportion to underinsurance (the Average Clause). Recently, some insurers have even voided policies where the sum insured was drastically below the true rebuild cost (viewing it as non-disclosure). These outcomes are avoidable with proper coverage. By making clients aware of these scenarios, brokers can underscore the value of getting their sums insured right.

By staying on top of cost trends and guiding clients accordingly, brokers act as an essential defense against underinsurance. In a time of labour shortages and cost volatility, this advisory role is more important than ever. Ensuring adequate coverage not only protects clients but also helps brokers avoid difficult conversations after a claim loss. It’s about being proactive today so that, if the worst happens tomorrow, the insurance truly delivers.

Labour shortages are reshaping rebuild risk

Construction labour shortages are proving to be a silent driver of insurance risk, silently pushing up rebuild costs in the background of every property policy. Until the UK’s skills gap is bridged, we can expect rebuild values (and thus required sums insured) to stay on an upward trajectory. Brokers and insurers must adapt to this reality by continuously updating valuations and educating clients.

The good news is that awareness of underinsurance is growing, and efforts are underway to train new builders for the future. But right now, diligence is key. By recognising the impact of labour market trends on insurance and taking preventative action, brokers can steer their clients through the uncertainty, ensuring that even in a time of rising costs, their coverage remains rock solid and reliable when it’s needed most.