Luxembourg lends hand to buffer building material shortage

Luxembourg has agreed to extend builders’ deadlines and allowed waiving penalty fees if they fail to complete buildings in time due to a severe materials shortage, public works minister François Bausch has said.

The government is also looking into making advance payments to cushion the blow of soaring prices on materials such as wood and steel.

A global supply shortage, mainly due to high demand from the USA and China and the knock-on effects of the pandemic, have led to both a surge in material costs and very long waiting times for delivery, putting building firms under huge pressure.

“Some materials have more than doubled in price,” said Roland Kuhn, chief executive of Kuhn, one of the largest construction firms in the country. “This represents several thousands of euros.”

'Extraordinary prices'

While Kuhn has enough stock to last another month or so, some companies have already had to bring works to a halt.

“We are all worried that if things don’t change, we will have to stop projects and send workers home,” Kuhn added.

The construction sector was hit hard last year when the coronavirus started spreading in Luxembourg, when all building sites were forced into a standstill for more than a month. The government has now once again allowed the building sector to put workers on furlough to help businesses stay afloat.

But following a meeting with the tradesmen’s federation (Fédération des Artisans) earlier this month, public works minister François Bausch has agreed “in principle” to make quicker advance payments to help with increasing costs, extend construction deadlines, and waive fees for builders who cannot meet their deadline, he said in an email.

This is as long as the companies can prove the delay was due to them not being able to get their hands on material.

The federation’s request was an “exception because the prices are extraordinary” and materials are difficult to obtain, said assistant secretary-general, Patrick Koehnen. “It’s affecting the whole sector. They had liquidity problems because of the pandemic and now this on top.”

Public buildings at risk of not completing

The biggest price hike is in wood, which has more than doubled, and materials such as steel, metal, concrete, PVC and insulation have suffered a hit upward of 40%, according to Kuhn.

Some public buildings at risk of not being completed due to the shortage include the future international school in Mersch, the European Commission’s new building in Kirchberg and the country's new prison.

While Bausch’s move safeguards public works, many private buildings are also taking a hit.

Housing in Luxembourg is already unaffordable for many people working in the country, and the staggering 17% price increase last year has pushed many over the border in search for more affordable living in France, Germany or Belgium. The average price for a house in the capital now stands at €1.35 million and it is costing people 70% more to put a roof over their heads in Luxembourg than the EU average. With the materials shortage pushing construction prices even further, building firms are having a hard time to give a quote for jobs.

“It’s difficult to quote if tomorrow the price is not the same,” Kuhn said. “We are talking to clients to see if they can bear the surplus cost. We have to find an arrangement or the work cannot get done, and that’s not good for anyone. It’s an exceptional situation.”

A total of 11 firms applied for furlough this month as some of their workers have been left idle due to materials not being delivered. MPs said in a parliamentary question in early June it was impossible to forecast how long the shortage could last.