Building New Homes Will Get More and More Expensive, Here’s Why

Copper for electrical networks, steel for reinforcing concrete and for hardware, aluminum for door frames, plastics for pipes, glass wool for insulation, cement, glazing, bricks, tiles and tiles from intensive cooking processes… The building incorporates so many materials and equipment that it bears the full brunt of the surge in raw materials and energy.

And she is fearsome. In one year, a barrel of crude went from 63 to 107 dollars, a ton of aluminum from 1,500 to 3,400 dollars, that of copper from 8,900 to 10,200 dollars, that of coal from 68 to 290 dollars. As for the price of European natural gas, it has been multiplied by five.

For several raw materials, prices are at historical records and, for all, above what they were in 2019, before the crisis caused by the Covid. A crisis from which the world economy emerged too quickly and in chaos, causing both jolts in production and a worrying inflationary mechanism.

For several commodities, prices are at historic highs. | WEST-FRANCE INFOGRAPHIC

The cumulative effects of the war in Ukraine

All of this was at work before February 24, but the outbreak of war in Ukraine added enormous instability to the markets, with high volatility in energy prices,explains Loïc Chapeaux, Director of Economic, Financial and International Affairs of the French Building Federation (FFB). Very energy-intensive productions such as tiling or roof tiles were even interrupted by certain suppliers for several days in March”.

​This, together with concerns about certain raw materials, has also caused a fear of supplies, therefore anticipation purchases and shortages”.It took the terrible tragedy that hit Ukraine to discover that it produces neon, essential for semiconductors, as well as concrete iron, aluminum, clay…

The list of what may no longer come from Russia is longer, from hydrocarbons to titanium (used in planes but also paints), including aluminum, of which Russia is the second largest producer in the world. , its champion, Rusal, also owning factories in Ukraine.

The example of K-Line windows

For construction suppliers, it is impossible not to pass on the increase in production costs. In Vendée, K-Line, leader in aluminum frames (whose metal comes from Norway), is preparing to applyan increase of 4.5%, after that, traditional, of February”.It is unheard of, just like the three exceptional increases practiced in 2021. We take care to warn two months in advance, but cannot do otherwise. And yet we do not pass on everything. At the end of the day, there are customers who cannot absorb the increases indefinitely”.

Same tone at the giant Saint-Gobain, which produces both a quantity of construction products (roofing, plasterboard, insulation, wood, glazing, etc.) and operates materials trading centers. The group says it has suffered an increase in production costs of 15% but, in order to protect (its) artisan customers, only passed on 6.7%”.

Customers who give up on their project

At the French Building Federation, Loïc Chapeaux reports on increases in materials ranging from 15 to 25% for many products, the price of reinforcing steel having, for its part, tripled in one year.

The consequences of the war in Ukraine are still, on this point, to come. Result, quotes signed three months ago are impossible to achieve at the agreed price”. Companies try to renegotiate the markets. The unpredictability clause, put forward by Bruno Le Maire, can help in certain cases, but only with public principals”, recalls Loïc Chapeaux. On the side of private clients, we are beginning to have cases of companies or individuals who give up on their project, a war at the gates of Europe being able to discourage investment.

Especially since the inflationary effect is accentuated by the introduction of new energy standards on the 1er last January and the scarcity of building land by mayors increasingly reluctant to let the concrete flow.

The return of variable price contracts

The aid, mainly loans and deferrals, provided for in the “resilience plan” presented by the French government on March 16 is deemedunsuited to the situation of companies that are short of cash”.

The FFB is therefore calling for other forms of state support as well as solidarity within the sector”.However, she announces thatwe are beginning to return, as after the oil shock of 1973, to contracts with revisable prices, which had almost completely disappeared. We had to dig into our archives.

The penultimate link in the chain before the end customer, promoters ensure play their role, sometimes going so far as to finance the purchase of certain materials on behalf of construction companies”, indicates Didier Bellier-Ganière, general delegate of the Federation of property developers (FPI).

Still, the inflation effect is there and worries us, of course. The cost of new housing has already increased by 5 to 6% in 2021, but more than a third of our members expect increases of at least 10% over the coming year.

Avoid a housing crisis

The FPI recalls that France is committed to a housing crisis, with a construction rate of approximately 380,000 buildings per year, while the annual need to be satisfied is 400,000 to cope with population growth, plus 100,000 to reduce the problem of poor housing”.

She appeals to the mayors, which should be required to apply the maximum level of building density provided for by local urban plans. In particular by no longer systematically reducing the number of floors in buildings. Since we are moving towards stopping the artificialization of the soil, we will have to build higher”.

Didier Bellier-Ganière also indicates that the REIT has conveyed to the presidential candidates its wish that the bill, at least for housing, be reduced from 20 to 5.5%, as is the case for renovation”. An ultimate measure that the state, potential big loser of billions in tax revenue, would not adopt lightly.

Building New Homes Will Get More and More Expensive, Here’s Why

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Building New Homes Will Get More and More Expensive, Here’s Why