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Constructors fear new-build cancellations as prices soar

Constructors fear new-build cancellations as prices soar

by Heledd PRITCHARD 2 min. 28.09.2022
Construction companies are worried people will cancel their building or renovations projects as prices almost double
A construction project in Luxembourg
A construction project in Luxembourg
Photo credit: Gerry Huberty

Building companies are worried people will cancel plans for new homes or renovation works due to heftier price tags as costs continue to rise as a result of Russia’s war on Ukraine and lingering Covid supply chain issues.

The price of wood and steel - both essential materials when building a home - has almost doubled, soaring by 93% and 81%, respectively, since the start of the pandemic in January 2020, Economy Minister Franz Fayot and Minister for Small and Medium-sized Enterprises Lex Delles said in response to a parliamentary question on Tuesday.

Construction companies fear that private people will postpone their projects or even cancel them completely because of “substantial price increases”, Fayot and Delles said.

Housing in Luxembourg is already unaffordable for many people and while prices rose at a slower pace of 8% between April and June this year – down from a 10.5% increase in the first three months – fewer people are taking out a mortgage, national statistics agency Statec said in August.

Many people have also stopped looking for a home to buy and some have had to reconsider their budget as a result of mortgage rate rises, property website atHome previously said.

Inflation has accelerated at its fastest pace in decades around the world in recent months, leading central banks to raise interest rates to prevent the economy from overheating. Banks then pass on these higher costs of borrowing to their clients in loans, such as mortgages.

It is still rare though that projects are being cancelled but people are more hesitant to build a home or undergo large renovation works, both ministers added. Communes are also concerned their projects will no longer fit in their budget.

The cost of materials was already up since the start of the pandemic and soared further when the war in Ukraine broke out at the end of February. Potential buyers are also doubting whether it is the right time to invest, given the increased economic uncertainty.

China’s zero-Covid policy - involving strict isolation, snap lockdowns and mass testing - has also affected the global supply chain with delays spilling across the world. As prices increase and waiting times for deliveries get longer, builders are having a hard time giving a quote for jobs.

While the number of building projects picked up in Luxembourg in the first three months of the year, it dropped significantly between April and June and was much lower than prior to the pandemic, the parliamentary response shows.

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