New Housing Construction Costs Rise 4.8% to Highest Level in Over Two Years
The cost of new housing construction in Portugal registered a year-over-year increase of 4.8% in July, reaching its highest point since March 2023, according to data released this Monday by the National Statistics Institute (INE). This acceleration in costs presents a growing challenge for the national construction sector, which is grappling with inflationary pressures from both materials and, most significantly, labor.
The INE's New Housing Construction Cost Index (ICCHN) indicates that the primary driver for the annual increase was the cost of labor, which saw a sharp rise of 8.9%, the highest since October 2024. In contrast, the price of materials increased by a more moderate 1.5%, though this was also the highest rate recorded since March 2023. The institute's report highlights the disproportionate impact of labor on the overall index, noting that it contributed 4.0 percentage points to the final 4.8% figure, while materials accounted for just 0.8 percentage points.
This pressure from labor costs is attributed to both wage increases and a persistent shortage of qualified professionals in the construction industry. The demand for skilled workers continues to outpace supply, leading to higher remuneration costs for companies. This dynamic suggests that even if global commodity prices stabilize, the human resource component will likely remain a key source of cost inflation in the Portuguese construction market for the foreseeable future.
A detailed analysis of material costs reveals significant volatility across different categories. Among the products experiencing the most substantial price hikes were glass and mirrors, which rose by approximately 30%, and air conditioning units, with an increase of around 15%. These sharp rises were partially offset by price reductions in other areas. Notably, mild and galvanized steel sheets saw their prices fall by about 15%, while steel and cast iron pipes experienced a decrease of roughly 10%. This heterogeneity in price movements suggests that specific supply chain dynamics and raw material costs are creating a complex and unpredictable pricing environment for builders.
The INE also reported an acceleration in the monthly growth rate. The ICCHN rose by 0.7% in July compared to June, a 0.3 percentage point increase from the previous month's rate. This trend was again led by labor costs, which climbed 1.1% month-over-month, while material costs saw a more subdued 0.3% rise. This sustained monthly acceleration indicates that the pressures on construction costs are not only persistent but may be gathering momentum as the year progresses.
The findings from the National Statistics Institute underscore a challenging period for the housing construction sector, with rising costs potentially impacting the development of new projects and the final price of properties for consumers. The data will be closely watched by policymakers and industry stakeholders as they navigate the current economic landscape.
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