Construction costs rose after the inflation crisis hit the western economy, and companies did not pause for more than a year. Labor and material consumption, according to the Ministry of Transport, Mobility and Urban Agenda (Mitma), showed a 2.4% increase through May compared with the end of the previous year. The overall cost of work sits 1.4% below the all-time high reached exactly one year earlier in May 2022, signaling renewed pressure yet not a full rebound to peak levels.
This stabilization occurs while costs remain near record highs. In a July bulletin shared with partners by the Madrid Real Estate Developers Association (Asprima), it is noted that since May 2020 the cumulative increase reaches 26.82% in non-residential buildings and 1.77% in residential construction. Across the entire building spectrum, the Mitma index shows more than a 28% rise compared to May 2020. Sector sources indicate that costs have, indeed, stabilized even as companies await the new academic year to gauge future demand. Costs are expected to show resilience through September as activity picks up. These trends are observed amidst talk of a steadying market after a period of volatility.
Why did stabilization occur? In the early months of 2022, some raw materials priced up rapidly began to ease. Aluminum futures on the British market, which peaked in March of last year, traded around 3,500 and have since fallen to just above 2,150, a decline of over 30%. Steel and copper prices also softened, dropping by about 22.5% and 13.6% respectively. Yet not all materials followed this downward path; glass and cement remained expensive, increasing by roughly 32% and 21.5% from the previous year, according to Asprima. This mix of price movements contributed to a complex stabilization dynamic for the sector.
What will happen in the coming months?
CaixaBank Research, the economic analysis center of the financial institution, notes that industrial metal prices in international markets have shown a meaningful retreat (the London Metal Exchange index has fallen roughly 30% from its peak in April 2022) and energy costs have cooled as well. The combined effect points to a continuing downward trend in construction costs over the next quarters, suggesting that the stabilization could solidify as energy-intensive manufacturing costs ease and materials price volatility diminishes. This perspective aligns with a broader expectation of easing input costs as supply chains normalize and manufacturing efficiency improves. The implication for contractors and developers is a gradual rebalancing of project budgets and financing conditions as the market absorbs the recent price movements.
This illustration accompanies the sector outlook as it evolves in the market.
This institution projects that housing construction costs may decline on a year-over-year basis in the coming months, with a potential start of a gradual price decrease in 2024. It is estimated that housing construction costs could fall by around 5% on average in August 2024, while costs may settle back toward pre-2024 levels, though remaining about 16% above the January 2021 baseline. The real estate department of the economic analysis center emphasizes that the decline would be gradual and would reflect a normalization of volumes and input costs rather than a sudden drop, signaling a cautious but hopeful trend for the sector going forward.