The shortage of construction materials may lead to the collapse of weaker companies

Prague – The shortage of construction raw materials and supplies, along with their high prices, may lead to the collapse of weaker links in the supply chain. Ultimately, this will result in employment issues. The current rise in prices is absolutely unprecedented. Jiří Nouza, the president of the Construction Entrepreneurs Association, said this to ČTK today. According to experts, one of the causes of the raw material shortage is the restrictions in maritime transport.

According to statements from representatives of construction companies contacted by ČTK, the prices of steel and insulation materials have risen year-on-year by up to 100 percent, with some wood products rising even more. They stated that there is a shortage of construction materials, delivery times are extending, and future developments are difficult to predict.

Data from the Metrostav group indicate that, for example, the price of construction wood has increased by up to 160 percent from September 2020 to the end of May 2021, reinforced concrete steel by nearly 100 percent, and EPS foam polystyrene by 83 percent. According to data from construction material retailers' websites, a kilogram of reinforcement costs between 50 and 70 crowns, depending on the width. A package of five polystyrene boards with a width of 50 millimeters can be purchased for about 90 crowns. An acoustic brick with a width of 190 millimeters costs around 70 crowns.

"We already have specific examples where companies are withdrawing from awarded contracts with the excuse that they are currently unable to guarantee the price and delivery date as stated in the contract. This concerns not only public clients but also private investors," Nouza stated.

According to him, the consequences of the current situation will affect everyone, both investors and clients. "It is not only a problem for contractors and their risk. What is happening is an unprecedented leap that fundamentally influences or can influence the entire supply chain," Nouza added.

He further noted that one possible consequence is the contractor's withdrawal from the contract, after fulfilling all obligations including the payment of penalties. "For the investor, this means not drawing allocated funds, whether it is a loan or a grant. This creates a problem already outside the contracting company," Nouza added.

According to developers, rising prices and the shortage of construction materials are already starting to reflect in increased apartment prices. They stated that one of the causes is the disruption of the standard supply chain due to measures against the spread of the coronavirus when state borders were closed for an extended period.

Apartment prices in most regions of the Czech Republic have significantly increased in recent years. For example, in Prague, new buildings have increased in price by 113 percent over the last six years, and at the end of June, their average selling price was 118,480 crowns per square meter. In addition to rising construction material and labor costs, experts mention low supply, rising land prices, high tax burdens, and unnecessarily strict technical regulations as causes of the price increases.

Construction, with about a ten percent share of GDP, is one of the most important sectors of the Czech economy. It has grown for three consecutive years since 2017. In 2018, production increased by 9.1 percent year-on-year, the highest since 2003. Last year, construction declined by 6.2 percent, primarily due to measures against the spread of the coronavirus. This year, by the end of May, it had decreased by 2.3 percent.