Analysts: Rising prices in construction are already forcing families to sell unfinished homes

Prague – Prices in construction continue to rise, along with the number of families forced to sell unfinished homes because they cannot afford to pay both a mortgage and rent at the same time. This follows from the statements of analysts contacted by ČTK today. According to data from the Czech Statistical Office (ČSÚ), construction production in the Czech Republic accelerated its year-on-year growth in October to 3.7 percent from September's three percent.

Ground construction, which includes the building of residential and non-residential buildings, grew by 7.1 percent compared to October last year. The production of civil engineering, which includes the construction of roads or telecommunications and energy networks, fell by 3.3 percent year-on-year. Month-on-month, construction production was up by 0.4 percent.

According to Komerční banka economist Martin Gürtler, construction has significantly lagged behind the rest of the economy so far, with production 4.5 percent lower than in pre-crisis October 2019. "A partially positive signal could be the increasing number of building permits," Gürtler stated.

The number of issued building permits increased by 2.2 percent month-on-month, following a previous drop of 8.2 percent. Year-on-year growth reached 9.6 percent, which, according to Gürtler, was related to a low comparative base. "Last year's autumn wave of the pandemic started earlier and brought with it stronger anti-epidemic measures, which included limited operation of government offices," Gürtler added.

The chief economist of BH Securities, Štěpán Křeček, pointed out that while the situation regarding the issuance of building permits is slightly improving, the bottleneck has shifted to the builders, who are struggling to fulfill contracts. This is also reflected in the rising costs of construction work, which, along with construction materials, are sharply increasing in price. According to him, there is a growing number of cases where people do not have enough money to complete their unfinished family homes due to rising prices.

"In many cases, banks refuse to increase mortgage loans, which creates extremely uncomfortable situations. In the best case, people are moving into unfinished and unapproved homes. In the worst case, the unfinished homes are uninhabitable and families are forced to sell them because they cannot afford to repay the mortgages and also pay rent," Křeček stated.

How the clients of the contracts will react to the rising prices in construction remains a major unknown, stated ČSOB analyst Petr Dufek. "Preliminary signals suggest that some orders may be canceled by the companies themselves, while others may have to be reapplied for tenders. Despite the fact that construction materials are rapidly increasing in price, the main problem for the entire industry remains the shortage of qualified and auxiliary workers," he remarked.

According to Křeček, it would be appropriate to address the labor shortage by attracting foreign workers from culturally related countries. "For example, Ukrainians can earn three to five times more here than in their own country," Křeček noted.