During the pandemic the construction sector faced a sharp surge of prices of construction materials, which was due to increased demand, interruptions at factories, as well as disruptions in logistical networks. Although the pandemic has calmed down somewhat, the invasion of Ukraine and the geopolitical situation that followed has created new challenges for the construction sector.
The decision to cut ties with Russia and Belarus has impacted the availability of many raw materials used in construction work and which were previously imported from these two countries, BNN was told by Luminor Bank.
«After the first months of the pandemic, which were spent in waiting, the housing market in Latvia took on new turns. With demand up, 2021 was marked with active development of new projects, building renovation and repair work. All this is expected to continue this year. However, the invasion of Ukraine has created bigger challenges for the construction than the pandemic has. The prices of several vitally important materials have already increased significantly. Supplies are disrupted. This forces construction companies to look for alternatives for suppliers, which only increases the prices of raw materials,» says Luminor housing lending expert Kaspars Sausais.
The bank’s expert explained which construction materials have experienced the biggest price surge and how this can affect construction, renovation or repair work.
Metals
Metal constructions and materials are vital for construction. They are used to lay all the way during the construction process – from foundation of the building to the roof.
Nearly all of the metal used in construction in Latvia is imported from other countries. Until now most was imported from Russia. Now that this option is no longer available, construction companies will need to look for alternatives.
In 2021 iron and steel were in the TOP 5 most important imported goods group. Imports grew 86% last year, which indicates the high demand for these raw materials on the market. Imports of these materials from other countries inflate the price even more due to logistical costs.
Concrete
Concrete is also a vital construction material. Sometimes it is the main material used in construction. The price of concrete has been on a rise in recent years, because with increased environmental requirements authorities adopt different limestone mining restrictions. In the coming years cement manufacturers in Europe will need to adopt different measures to reduce CO2 emissions, which will definitely impact the price. On top of it – Ukraine is one of the main exporters of cement in Europe. Supplies are difficult at the moment. The surge of energy and fuel prices also further increases the end price of concrete.
Lumber
Although Latvia has no shortage of lumber, global demand for high-quality lumber used in construction has increased considerably in the past several year. Since 2019 demand has increased the price of lumber by approximately one-third. Although lumber and wooden products make up the bulk of Latvia’s export goods and export growth in 2021 was 45% when compared to the year prior, lumber also composes a considerable portion of imported goods, and Belarus was one of the biggest import countries in this regard.
Imports of lumber and wooden products has increased even more than exports in recent years – by 60%. It is expected for availability of this raw material to remain high. However, prices are expected to grow.
Aside from aforementioned construction materials and price changes, it is also important to keep in mind growing prices of other materials used in the construction process, as prices are also affected by ongoing growing prices of energy resources and fuel.
The shortage of labourers remains a serious problem as well – because construction work in Latvia goes very actively, it is difficult to find good workers. Additionally, labour costs have also increased due to high demand. Construction can last a long time due to shortage of materials and delays with supplies.
Although the situation with construction of private homes is a challenge, construction costs are not expected to go down in the near future.
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