What does the construction materials price crisis in Romania look like?

Is there a building materials price crisis in the global landscape?

When tariffs rise in all sectors and industries, we do not exclude the possibility of a crisis. So can we talk about a crisis in construction?

Yes, we can, especially globally. The construction cost index has risen at an unprecedented rate, indicating a continued increase in construction material prices. Internationally, we are talking about a 20% annual increase, an amount of materials inflation not seen since 1980.

We are talking about both an incredible increase in costs and a shortage of building materials. These two problems are the result of several interlinked factors, and affect a lot of countries across Europe, including Romania.

What does the construction materials price crisis in Romania look like?

Construction prices in Romania are estimated to have risen by an average of 40% in the last year, from 10-15% for some materials to double or triple for others. Concrete, cement, steel, wood - all construction materials have seen massive increases.

Last summer, i.e. July 2022, the construction cost index in Romania reached a record high, increasing by almost 50% since the beginning of 2020. The evolution of this indicator over the last three years can be seen in Chart 1: Evolution of the construction cost index in Romania January 2020 - July 2022.

Graph: Evolution of the construction cost index in Romania January 2020 - July 2022
*According to tradingeconomics.com data

Moreover, construction works in Romania, as reflected by the construction works index, recorded a remarkable increase of +29% in 2022 compared to 2019. This is largely due to the increase in prices of construction materials, whose index increased by 55% compared to 2019.

Factors leading to the construction crisis in Romania

The construction crisis didn't happen overnight. From everything that is happening politically at international level, to the consequences of the health crisis and the most recent events in the world, to the costs of construction, everything has led things in this direction.

Below are some of the major factors that have led to the explosion of construction prices in Romania and worldwide:

• Pandemic health crisis: as early as 2021, as a result of the COVID-19 pandemic, energy and fuel costs have increased and the price of building materials has risen.
• Inflation and rising energy prices: new inflation rates not seen for decades, together with rising energy and transport prices, are also putting pressure on the cost of building materials.
• The war in Ukraine: affecting supply chains as well as production and transport, the war is yet another cause of rising construction material costs.
• Earthquake in Turkey: Romania imports building materials from Turkey, and the devastating result of the earthquake also affects the cost of these materials.
• Year-on-year increase in manpower: the year-on-year increase in manpower and the increase in minimum wages in construction from 3,000 to 4,000 RON is reflected in the price of construction and leads to higher prices for building materials in Romania.

The 2008 economic crisis vs. the construction crisis NOW

Although we recently experienced an economic crisis in 2008, the crisis we are experiencing today is different. In 2008, there were no sources of finance, banks could no longer lend, and developers had cheapened prices.

At present, financial resources are not the problem; banks have sufficient sources of funding. We are now at the opposite pole of the cheapening of prices in 2008: there is explosive growth setting new records for construction prices. Both the causes, and the effects, of the current crisis on these construction material prices are different.

Trends in construction material prices in Romania in recent years

It is impossible for international construction price inflation not to influence prices in Romania. This is because Romania imports more than 70% of building materials, and imports the raw materials for domestically produced materials.

So it is important that before looking at construction prices in Romania, we look at how these prices have evolved across Europe.

International construction prices

Ever since the health crisis began, the construction industry has been suffering. The consequences have been strongly felt since 2021, when unprecedented increases have been recorded compared to 2020.

Steel reinforcing bars, for example, have seen a price increase of more than 60% in many other countries, not just Romania - where its value has doubled. You can check these percentage increases in Table 1: Statistics on international steel rebar price growth in 2021.

(Table 1: Statistics on international rebar price growth in 2021)

Moreover, also in the global landscape, 2021 saw record price increases of +15% for bitumen and +10% for cement.

Construction materials prices in Romania

Returning to the evolution of values in the prices of building materials in our country, smaller or larger increases have been recorded for all materials in the industry.

Prices exploded for steel, OSB and expanded polystyrene, but spectacular increases were seen for most other materials. An evolution of prices for some of the most used materials can be seen in Table 2: Evolution of building material prices in Romania between April 2020 and April 2023.

(Table 2: Evolution of construction material prices in Romania between April 2020 and April 2023*)
*According to constructiibursa.ro data.

So prices have been steadily on an upward trend since 2020. According to the Concept Note announced by the Ministry of Development, prices from 2020 to 2021 have seen increases of:

• Over 12% for concrete;
• Over 17% for concrete steel;
• Up to 59% for uncured steel-concrete;
• 11%-15% for cement;
• Over 33% for copper;
• Almost 39% for wood;
• Up to 58% for EPS 120 expanded polystyrene;
• Up to 14% for extruded polystyrene.

It is obvious, therefore, given all the above data, that prices reached unprecedented records in 2022, when the increase was sudden and radical.

In 2023, this inflation seems to have calmed down, with either small, low-rate increases or price decreases for certain materials such as OSB and polystyrene.

Consequences and adaptation to high building material prices

All natural resources have become more expensive, the stock market is rising, and no sector or industry is unaffected by these changes.

One of the first consequences will be a drop in demand for materials in the coming period. European works are also affected as builders halt or prepare to halt the execution of projects that were budgeted at certain prices, prices that in some cases have doubled in the meantime.

What does this mean in terms of the consequences for developers in Romania? It means that they will most likely have to reduce their profits in order to continue their projects and sales and thus avoid the long wait that comes with selling at high prices.

Are construction prices expected to fall in the coming period?

Although difficult to estimate given the rapid pace at which the international landscape changes from day to day, experts say prices are not expected to fall for a long time.

An energy transition is expected in the immediate period ahead, which will also involve excessive demand for raw materials. Steel, copper and aluminium are some of the materials needed for this process, and they are also used in the construction industry.

As long as demand for materials continues to outstrip supply in the market, the level of these building material prices is expected to remain high