Home » Conflict in Ukraine expected to push up the price of new homes

Conflict in Ukraine expected to push up the price of new homes

Spanish home building costs

Putin’s war in Ukraine is pushing up the price of energy and building materials that were already rising because of the pandemic, putting home builders under even more pressure.

Back in October last year I reported that rising costs were creating problems for Spanish home builders as building materials rose 22%, and forced 25% of construction companies to halt or delay building projects. The conflict in Ukraine could make the situation even worse.

In 2021 home building costs were rising because of the pandemic, which played havoc with global supply chains and labour costs. Spanish government policy, and planning costs also helped push up the cost of building new homes in Spain. 

Now the conflict in Ukraine is adding fuel to the fire. Russia is a big supplier of energy and raw materials like steel, aluminium, timber and copper that are used intensively in home building. Supply disruption, and sanctions on Russia, have quickly pushed up the cost of energy, transport, and raw materials that builders use. If the conflict continues it’s only a matter of time before it feeds through into higher prices for new homes. 

“Building companies are suffering problems signing contracts for orders of metal, cement and stoneware,” says one builder quoted in the press.

“Inflation, supply chain problems and a shortage of professionals in the sector are already having an impact on completions, time frames and costs, and we don’t think it will improve, in fact the opposite,” says an executive from a listed developer.

Spiralling material costs and supply chain problems can create a vicious circle leading to delays and even higher costs. Some industry insiders quoted in the Spanish press warn it could threaten small and medium sized builders, and push the residential construction sector into crisis unless the government helps out with “urgent measures.”  

Before Putin invaded Ukraine the real estate consultancy CBRE forecast that Spanish house prices would increase 4.5% in 2022, partly due to the increase in new house prices. Considering the cost exposure of residential construction to the war in Ukraine, new home prices could rise significantly more than that if the conflict drags on, when the cost increases feed through to buyers in 2023 or even earlier.

New home prices have also been rising in recent years because Spain isn’t building nearly enough new homes to meet demand. Although housing starts have been rising in recent years (the pandemic year of 2020 notwithstanding), the chart below illustrates how housing starts are still not far above the historic low of 2013.

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