The general increase in prices worldwide, and which has its replica in the materials used in real estate construction, has caused more homes to be completed in Spain than those that are beginning to be built. According to the latest data from the Ministry of Transport, Mobility and Urban Agenda (Mitma), the number of completion certifications stood at 8,308 in May, the last month with available data. On the other hand, new construction visas amounted to 7,647, causing a difference of 661 notifications. Something like this had not happened, according to the historical series, since December 2020, when the negative balance was 92 certifications.
Previously, during the months of confinement and restrictions linked to the pandemic, Spain came to score much more notable differences, of up to around 3,000 visas. Since the effects of the 2008 financial crisis ended, and until the outbreak of Covid-19, the country had always registered more new construction visas than end of activity certifications.
The change in trend registered in the month of May, waiting to see if it lasts longer, is one more example of the effects that inflation is having on the market. Experts, for now, believe that the situation could continue in the short term due to the strong uncertainty surrounding the economy.
According to Gonzalo Bernardos, professor of Economics at the University of Barcelona, the halt in general activity is mainly motivated by the “panic” of small and medium-sized developers. They are the ones that control the majority of the market in the country (with a share of about 80% compared to 20% of the big ones), so their braking tends to have greater effects.
“Activity slowed down during the health crisis. Now, after having slowly recovered, the sector is suffering from the sharp rise in the price of materials, which is why it is slowing down its activity due to the omen of a bad winter, even with projects already signed,” says Bernardos.
In an average project, the cost of materials and the entire process of construction, management and bureaucracy will hardly exceed 25% of the profits obtained from the sale. Now, according to Bernardos calculations, in large cities this percentage can reach a maximum of 40%.
The increase in costs is evident. However, adds the economist and teacher, many developers also decide to stop due to the psychological factor and fear, since due to the high levels of demand for new-build houses “it would be perfectly possible to pass on the extra cost of materials in the final price of the house”.
The director of econometric forecasting at the real estate consultancy CBRE, Joan Pina Martí, also sees it as possible that completed homes will exceed those started for a few more months. The increase in construction costs, “which precisely reached a maximum in the month of May”, has led to a slowdown in the start of works in recent months. As a result, he adds, “we expect that housing starts this year will be slightly below those registered in 2021.”
On the other hand, in the case of completion certifications, “we expect them to continue to increase in the remainder of the year, due to the good pulse of the initiation during the last months of 2020 and the beginning of 2021”.
It is worth remembering, Pina Martí points out, that there is a lag between the housing starts and their certifications of between 18 and 24 months, a range that makes sense “since it would be the term for housing construction.” In other words, the fact that completion certifications exceed start-up visas would be explained by the fact that the current rate is slowing down compared to what was observed a year and a half ago.
At CBRE, however, they consider that the rate of housing starts will pick up again in the last months of the year, as construction costs stabilize and even begin to correct moderately. As a consequence, Pina Martí points out, the level of houses started “could return to line or slightly above those completed in the medium term.”
Reforms and restorations
The increase in the cost of materials does not seem to be having a full impact on the activity of reforming and expanding homes. According to Mitma data, between January and May 2022, 11,500 housing expansion or reform visas were signed, a figure relatively similar to the 13,000 sealed in the first five months of the previous year and the 13,500 signed in 2019, before the irruption of the Covid. In 2020, in a few months marked by confinement, just over 10,000 visas were closed.
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