2022-12-07
- In 2H22, there are more and more signals of a slowdown in growth or even a decline in the prices of many building materials. Labor and land costs are also growing more slowly.
- The main reason for the trend reversal is the dynamic transition of the economy, and in particular the construction sector, from the boom phase to the recession phase. We are currently observing a number of signals that should be identified with the upcoming clear decline in inflationary pressure, e.g. high inventory levels, a decrease in wages in real terms, a decrease in the M1 money supply, a strong tightening of monetary policy by major central banks or an improvement in global sea transport, resulting in decreases in freight rates.
- Today, the main threat to construction costs are energy prices. The technological process of production of many building materials is very energy-intensive, which places their producers in the group of industries with the highest share of energy consumption costs in total costs.
- The experiences of the last two years - negative supply shocks after the Covid-19 pandemic and as a result of Russian aggression against Ukraine - have significantly increased the level of unpredictability of project costs. Greater uncertainty is currently undoubtedly one of the most important factors determining the decisions of general contractors.
- In our opinion, the decrease in construction costs will not lead to a quick reactivation of building construction due to a significant weakening of the demand side, however, by supporting the profitability of projects, it will help to stop the collapse of new supply.
The Pulsce of Real Estate: Will the fall in construction costs stop the collapse of new supply? (pkobp.pl)
