Is Building in CLT Cost Competitive?




Cost is a constant debating point in the construction industry and understandably very close to all developers’ hearts. It is impossible to foresee the future with accuracy, as we have seen with the Covid pandemic forecasts. However, developers need to be able to take a view on what the financial dynamics of their project are going to look like when they come to build maybe 3 years after the initial plan.

We offer the following structure and observations as a framework for future discussion and perhaps a useful way to think about how construction and its economics may develop.

In this note we look at the development economics of a build in CLT vs a conventional build in block and bricks holistically, addressing costs, risks, time and potential income- all of which impact on the financial outcome for the developer.

The subjects we address are direct construction costs (the basis on which many if not all construction decisions in the UK are taken), prelims, risk factors commonly facing construction projects, the value of accelerating project delivery and finally the likely market value of a sustainable build compared to a conventional build.

Direct Construction Costs

Our surveying director considers that over the course of the pandemic, as a rule, conventional construction costs per square metre have risen from approximately £2,500 per square metre to £3,000 per square metre, taken in the round.

One merchant has made a recent announcement that the price of timber is increasing by 22%, making an increase of 38% over 4 months. Other material costs have risen similarly due to shortfalls in supply, as have labour costs, driven by labour shortages as migrant labour from Eastern Europe has returned home following Brexit. This applies particularly to skilled labour such as bricklayers.

We would expect the materials shortages to correct themselves in due course as supply increases in response to rising prices and as the current bulge in demand for construction flattens off. This could happen quite quickly, well within the three-year timescale of a development project.

Righting the shortage of labour and skills in the workforce is more problematic for conventional builds as they rely on highly skilled specialist labour which cannot be trained in the short term. And much of the existing workforce is close to retirement. There is also the question of whether labour can be attracted to “conventional” construction without significant changes in working conditions and increases in rates, which in turn will increase project costs.

The logical response to the labour problem, as we see it, is to adapt the construction methodology to a model that requires smaller work forces and less highly skilled work forces. The advantage of CLT over conventional methods in this respect is that much of the work required to build the building envelope is done under controlled conditions in a highly automated process within a factory. To put that into the labour context, the construction work force becomes a manufacturing workforce working in controlled and much safer conditions.

The amount of work required on site to install CLT compared to a conventional build is very much reduced; being limited to craning the panels into place and fixing them mechanically- a job for reasonably well qualified chippie.

This of course will also transform the building site, with far fewer vehicle movements, a lower requirement for wet trades, a much simpler material supply chain (with fewer opportunities for delays and shortages), a much-reduced requirement for site management and most importantly much better and safer working conditions which are much more attractive to a younger workforce.

And because of the need for much less labour the project finances are not so sensitive to increases in labour rates.

To come back to the direct cost (and shortage) issues, we say that while there has been and will probably, over a 3-year period, be inflation in all material prices, we do not have enough information to say whether that trajectory will favour CLT or conventional materials (although please see our comments below regarding carbon pricing).

Where CLT will win hands down however is in the costs and availability of the right labour.

Carbon Pricing

No argument about direct costs of construction would be complete without considering how the market is likely to change in the light of the UK government’s drive to net carbon zero. The Industrial Decarbonisation Strategy (March 2021) states that “Carbon Pricing is a cost-effective and technology neutral tool for getting industry to take account of its emissions in business decisions” before going on to talk about rebadging the EU Emissions Trading System

as the UK Emissions Trading System (UK ETS) and aligning the cap on allowances with the overall limit of emissions allowed in the system by January 2024.

In other words, we can expect carbon pricing to apply to the most carbon emitting manufacturing processes used in the construction industry, ie cement, concrete, brick and steel by the beginning of 2024.

In contrast to those materials CLT, being made from wood, sequesters carbon dioxide. Carbon dioxide absorbed while the wood was growing is captured in the CLT. This is the antithesis of the carbon emissions arising from the manufacture of cement, steel etc. These materials will over time be able to reduce their carbon emissions either by using renewable energy for their processing and/or by a process of carbon capture, but this technology is early stage, likely to be very expensive.

However, whatever they do they will not be able to improve their carbon performance beyond zero, whereas because CLT sequesters carbon dioxide it is truly carbon negative ie contributing to the solution rather than just maintaining parity.

In the case of timber products, like CLT, the carbon capture technology is natural. Trees feed on carbon dioxide and sunshine and are one of nature’s most important carbon sinks. This process is of course free, requires no human intervention and is totally reliable.

In short, once the UK ETS is established and the cap on allowances aligned with the limits of emissions allowed in the system in early 2024, the cement, concrete, brick and steel industries will become subject to the costs of complying with the system, or the costs of carbon capture, whilst CLT will not.

Once this strategy is implemented (nb it is scheduled to be implemented within our 3-year project timeframe), CLT can be expected to have a significant material direct cost advantage over its conventional competitors whilst offering superior GHG performance.

Risk factors

The risk factors shared by both CLT and more conventional construction projects which we consider in this section are:

· Programme over-runs

· Health and Safety

· Foundations

Programme Over-runs

Three of the main causes of programme over-runs are:

· Failures of project co-ordination ie the right labour/materials do not reach site at the right time.

· Bad weather

· Build issues eg wide tolerances

Conventional builds are complex. In effect the main contractor is tasked with building a one-off project in a field using a myriad of suppliers, sub-contractors and in house labour. While the in-house labour is probably within the contractor’s control, the other elements are not, and there is no way of accounting for sickness and other absences.

The more complex the task, the more delays there are likely to be. So, consider a conventional build of a building envelope involving blocks, cement, bricks, ties, insulation, fork-lift trucks, scaffolding, brick layers, labourers, scaffolders, drivers, forklift operators, together with all the storage and security issues that arise while the building is going up. This is a lengthy process- increasing the likelihood that things will not go to plan. Such sites are dangerous places with big health and safety risks arising from material handling and working at height.

Then consider a CLT build. The walls panels arrive on site pre-built and are craned into place. They are then fixed mechanically using straightforward drills etc. The number of parts in the construction of the envelope is reduced dramatically and so the number of times materials need to be handled and the number of deliveries to site reduce significantly (at the Dalston Lane site the deliveries reduced from an estimated 806 to 107- Source Andrew Waugh, project architect).

The necessary supplies are reduced to panel deliveries, the arrangement of suitable cranage and the installation team. There is unlikely to be any need for as much scaffolding. The build is much simpler and as a consequence much easier to manage and the likelihood of delays is much lower, simply because there is less to go wrong.

Because the site is less complex and the need for working at height is reduced such sites are safer. They are also cleaner, quieter and less unpopular with neighbours, which can be a material consideration in urban settings.

Building in CLT (or any Modern Method of Construction) is also much quicker, and so there is more scope to build float into the programme to allow for any unavoidable delays while meeting the clients’ expectations.

Bad Weather

Speed of build is your friend when bad weather strikes. It is much quicker to erect a weatherproof envelope using CLT than it is when building with conventional materials (estimates vary from 40 to 60% quicker)- and then work is able to continue in a sheltered environment. This is not always the case with conventional builds. CLT installation can also continue in temperatures where cement and concrete will not set. There are therefore opportunities in the UK to extend the construction year when building in CLT and mitigate delays for weather.

Build Issues

CLT is precision cut in a factory with very fine tolerances using CNC machinery. Buildings in block and brick as a generality do not meet the same tolerances. As a result CLT buildings are airtight from the start without any special work which simplifies the insulation and mechanical installation. With a CLT building it is also possible to order windows, doors and other joinery from the plans (saving time and potentially cost) in the reasonable knowledge that they will fit.

CLT is also much lighter allowing savings on groundworks and foundations, taller buildings on marginal ground conditions (eg over tunnels) and enabling development where you could not build economically by conventional means.

Time and Money

Because CLT builds are much quicker and simpler they take less time and require less management. Both of these are significant savings for the developer. He may for example be able to do 3 developments a year in CLT while only 2 in conventional materials, with obvious implications for improving and reducing overhead costs per project (prelims).

As the movement to net zero Carbon gathers pace, the costs of conventional materials increases to comply with carbon pricing requirements (or carbon capture) and clients increasingly seek to comply with Environmental and Social Governance requirements we expect more demand for sustainable, carbon negative builds. We have already noticed that the finance market is changing to favour projects which comply with ESG objectives. We would expect CLT builds to fall into that category.

We have already noted in our conversations with banks that finance for sustainable buildings is more readily obtainable and cheaper than for conventional builds. Financial institutions regard climate change and the social and institutional changes that will accompany it to be a significant risk factor.

We would also expect other benefits for developers including an easier passage through planning and reduced S106 obligations.

Finally, the end users are noticing. The value of sustainable buildings tends to be higher than their conventional counterparts. In a 2019 study ( Ramboll reported the following regarding the value of sustainable vs conventional buildings:

“30% of the property owners/investors report an increased property value of 0-3%, 25% report an increased property value of 4-10% and 9% report an increased property value of more than 10%.”

We would suggest that developers should consider the market for and the pricing of their properties very carefully, but there is a good prospect that if they build sustainably the properties could have a significantly higher value than if they are built of conventional materials.


Looking forwards a few years we believe that CLT will offer a lower cost, faster, lower risk and more sustainable alternative to conventional builds. We think it likely that as the market develops and public policy embraces and implements zero net carbon policies there is a high probability a building built of CLT will command a higher value than an identical building made of conventional high carbon materials.

We therefore recommend that if, as a developer, you are planning a project you should both plan and design in CLT to minimise risk, to accelerate the project timescale, to future proof your investment and to maximise your income.

Antony Fanshawe

25 June 2021.

A lot of construction decisions hinge on a narrow interpretation of the cost of delivery of each part of the project. However this is not the whole story, other factors can be just as or more important in determining the cost of a building; for example finance costs, the project management and administration costs, the building’s running costs (including heating), the ease of maintenance and the “liveability” of the building.

A Stora Enso study in 2018, looking at the costing of multi storey residential buildings showed that the “construction cost difference between timber and concrete….is small”; quantifying that cost difference at 3% (+/-2%) ie 1-5%. Off-setting the higher cost they found that there were compensating savings with practical advantages including:

· Lighter and cheaper foundations

· Programme advantages arising from achieving a weatherproof structure earlier eg earlier fit out

· Lower prelims due to faster build time

· Savings on finance costs and earlier income stream from faster build time.

Overall, they found that the construction time was about 20% quicker with CLT compared to a concrete build.

In another study of offices and commercial buildings, Stora Enso found that while the average reduction in the speed of the programme was of the order of 25-30% the reduction in the time taken to build the superstructure was 50% or more.

They concluded that this gain in speed would give the developers “reduced loan periods and less interest paid”, quicker returns to investors and the ability to complete more projects with the same team. In short, the benefits included reduced management costs, improved returns and process efficiencies.

These advantages were being achieved against a background of build costs being “comparable to traditional methods”.

Antony Fanshawe

23 March 2021