New Housing Will Become 3% More Expensive Due To Rise In Materials

The increase in the price of the main raw materials related to the world of residential construction can lead to a 3% rise in the price of new construction housing, which would be added to the one that is already experiencing this product naturally in the market due to increased demand . This is confirmed by the experts consulted by the Economist , who, on the other hand, consider that the rise in materials “is already reaching the ceiling.”

” Materials have been increasing significantly in recent months, registering increases of between 20% and 70% in some cases,” says Daniel Cuervo, CEO of Asprima, who highlights that in most cases ” these increases have stabilized and it seems that they have reached their ceiling. Another different thing is to know when they will return to the levels before this crisis “.

To find the origin of this problem, we must look beyond our borders, since in this case it is a global issue. This is how Michel Elizalde, CEO of ACR, explains, who points out that ” the origin lies in the international demand and does not have to do only with the situation of materials and construction unions in Spain” . “Shipping by sea, containers, have risen significantly. In addition, the increase in energy costs has added to the effect produced by the pandemic, which paralyzed activities and factories. With the gradual return to normality and dynamism of the demand for housing in Spain, it has been found that there was no necessary stock “, specifies the manager.

In this sense, Cuervo focuses on China, which until now “was absorbing a large part of the production.” The Asian country undoubtedly plays an important role that could even turn out to be beneficial now after the real estate crisis led by Evergrande broke out .

“Many of the factors that have led to this rise in materials are moderating and even the Chinese real estate crisis could have a downward impact on construction costs considering that the demand for basic materials such as copper and steel is between 10 and 20% of world production “, details Mikel Echavarren, CEO of Colliers.

While waiting for this turn of events to take place, the sector regrets that this situation of rising costs is taking place, since according to Luis García Malo de Molina, Director of Operations of AEDAS Homes, ” The real estate sector and society cannot afford a rise in construction costs like the one we are currently witnessing , both in construction costs and in labor because this inevitably translates into a higher house price, which closes the access to a house to an important part of society. Mainly, to young people “.

All the players in the sector have to do our part to make affordable housing

Thus, García Malo de Molina believes that “all the actors in the sector (suppliers, builders and developers) have to do our part to make affordable housing. And the different administrations must also support this objective, facilitating, where appropriate, material premium, the land, at a lower cost , either to promote rental or owned housing “.

What is the sector doing?
“At the moment, builders and developers are assuming the effect of this price escalation , which goes against our margins, so it has no impact on the price of real estate. If this situation continues over time, perhaps we will have to consider other scenarios “, Elizalde acknowledges.

In the final price of the house, the cost of construction represents between 30% and 40% of the investment
The CEO of ACR details that in the final price of the house, the cost of construction only represents between 30% and 40% of the investment. Therefore, if construction prices rise by 13% until September, the maximum impact on the price of housing would be an increase of 3% , but only in the event that the builders transfer all that increase to the developers and they, in turn, to final consumers, which, at the moment, is not happening.

In this sense, Cuervo recalls how the sector was able to absorb the increase in labor costs that occurred between 2017 and 2018, although it acknowledges that in this case, if the situation extends over time, ” the Residential projects that are going to come out in the next few months will probably pick up this increase in materials and therefore will mean an increase in the cost of the final product “. “This is a delicate issue, since there will be increases that the market cannot digest and each company will have to see what its strategy is,” Cuervo warns.

According to Echavarren, this situation “can motivate a developer to change plans and sell the land before undertaking businesses in which margins are narrowing, or from another perspective, wait for construction costs to moderate, slowing down the start over time. of the projects, as long as it does not affect the licenses that had already been obtained “.

Another more expensive factor
Elizalde, alerts that beyond the prices of the materials, there is another important factor to take into account. ” The effect of a sustained tension between the high demand for new housing compared to the limited production capacity may have a greater impact on the price of housing “, explains the director of ACR. “There is demand for the purchase of 140,000 homes per year, but the sector is only capable of producing at a rate of between 80,000 and 90,000 units per year, which will continue to push prices up. However, we consider that it is a speed healthy cruise “.

“At ACR we are convinced that this structural situation, highly influenced by the shortage of qualified labor, can only be solved with a transformation of the construction towards an industrial model, whose working conditions of safety, stability and comfort are more attractive for young people, “he adds.

García points out that in “AEDAS Homes we have decidedly promoted industrialized construction since 2018 , which implies greater certainty in costs and terms, and therefore, in the final price of the house. We are sure that sooner rather than later, the process Offsite will be consolidated and will allow us economies of scale that hold down costs and, therefore, the price of houses to the congratulations of society in general “.