Construction costs in residential building rose 7.7% year-over-year through June 2021, compared with a 3.8% decline in 2020, meaning prices have soared 9.6% in just six months, as reflected in the Direct Construction Cost Index compiled by ACR.
“As we advanced in our analysis at the beginning of the year, the declines recorded in prices between the second and fourth quarters of 2020 were heavily influenced by the healthcare crisis, so the downward trend has been reversed as soon as activity has recovered and uncertainties have begun to clear,” explained CEO of SOLER & ASSOCIATES, Alfonso Soler.
In the fourth quarter of 2019 construction prices were already marking record highs, after registering rises for 16 consecutive quarters. A growing trend that was punctually broken by the health crisis in 2020, which led the Index to register falls that reached 3.8% at the close of that year. However, in 2021, not only has the upward trend of recent years resumed, but it has actually increased.
“The increases recorded in the last six months are largely attributable to the rise in the prices of raw materials such as steel, wood, aluminum and copper. There are still no significant increases in the cost of labor, which was the main cause of the constant increase in construction costs in recent years”.
In any case, “it is difficult to anticipate what will be the behavior of prices in the coming months and whether or not it will have an impact on companies in the sector that, given the uncertainty of the last year, may have taken certain risks to ensure their level of activity,” said Alfonso Soler.
“In our opinion, the criterion of prudence should guide all decisions taken at this time by each of the actors that are part of the production chain, since we are a key sector in the economic recovery of this country,” stressed the General Manager of SOLER & ASSOCIATES. “We are convinced that collaboration between all parties, in its most radical sense, is the only way to ensure that this upward trend does not affect the viability and profitability of projects.”
Structure costs rose 17%.
Direct construction costs closed the second quarter with a year-on-year increase of 7.7%. If their evolution over the last six months is analyzed, the increase rises to 9.6%. Thus, the Prices Paid Index stood at 140.85 points, surpassing the maximum value reached since this series has been published, which was recorded in the fourth quarter of 2019, with 133.63 points.
The items that most accused the rises are the foundation and structure costs of new works, which act as a leading indicator of the rest of the items, and which mark an increase of 13.4% and 17%, respectively. Also noteworthy are the price increases in wood carpentry (+7.1%) and glazing (+10.4%). Only earth moving recorded a year-on-year decrease, which stood at -1.8%.