Hidden Costs of 2012: Construction Inflation to Cost £4 billion
10/08/2007 |
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The TaxPayers' Alliance 2012 Watchdog is publishing new research showing how the 2012 Olympics will add almost £4 billion to construction inflation in London and the South East between now and the start of the Games in five years time.
The official budget for the Olympic Games has increased from £2.4 billion in July 2005, when London won the bid to host the Games, to £9.35 billion currently. With five years to go until the start of the Games, the TaxPayers' Alliance 2012 Watchdog has expressed concerns that the official budget may increase still further, and will be closely monitoring developments to ensure that taxpayers are getting value for money.
Preparations for the 2012 Olympics will, however, lead to a range of additional costs that have so far escaped scrutiny. In the first of a series of research notes, the 2012 Watchdog is investigating the hidden costs of the Olympics. The first area of scrutiny is the impact of the Games on construction inflation in London and the South East:
• The official bill for the Olympic venues, infrastructure and regeneration is currently almost £5 billion. The huge demand for construction that this represents will have knock-on effects in the wider construction industry, pushing up construction inflation each year until the Games have been held. EC Harris, a leading construction consultancy, estimates that the Olympics will increase annual construction tender price inflation in London and the South East by 1 to 1.5 per cent.
• For new construction orders in London and the South East, which are expected to reach well in excess of £10 billion by 2012, this will mean substantially higher prices for buyers. The 2012 Watchdog calculates that if the Olympics adds 1.25 per cent to construction inflation (the midpoint of the EC Harris range) each year between now and 2012, the increased cost of construction orders attributable to the London Olympics will reach £3.9 billion in total.
• The £3.9 billion total is not an annual figure, but is the sum of the increased construction costs each year between 2007 and 2012.
The increase in construction costs between now and 2012 attributable to the London Olympics will be felt in a number of areas. The 2012 Watchdog calculates that the Olympics will have the following effects for the different categories of construction order:
• £1.5 billion increase in the cost of private commercial buildings, new office and retail space.
• £921 million increase in the cost of building private housing, potentially adding to house price inflation in the Capital.
• £640 million increase in the cost of public buildings, potentially affecting plans for new schools, NHS units and GP surgeries.
• £444 million increase in the cost of infrastructure work, without factoring in large potential projects such as Crossrail.
• £237 million increase in the cost of building public housing during a critical period when projects for new social housing in London will be agreed.
• £161 million increase in the cost of private industrial buildings.
Alex Story, Former Olympian and Spokesman for the TaxPayers’ Alliance 2012 Watchdog, said:
“Most people are excited by the prospect of the London Olympics, but the constant stream of negative news almost every month about bad management and rising costs will soon start to weigh heavy on peoples' enthusiasm. The picture that was painted to win the bid was far too rosy and the lack of honesty and transparency about hidden costs like these runs the risk of killing the buzz for what should really be an awesome party.”
Matthew Sinclair, Policy Analyst at the TaxPayers’ Alliance, said:
“Increasing the cost of construction in London and the South East is not only hazardous to the health of the British economy but also imperils the objective of getting enough new homes built to make things easier for first-time buyers. The bigger the bill for the Olympics becomes, the more damaging this knock-on hidden cost will be.”
(Source: taxpayersalliance.com)
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