Rising material and labor costs are creating notable headwinds for the Czech Republic’s construction industry, threatening too stall growth projects and further strain housing affordability. While price increases have cooled slightly from the dramatic surge experienced in 2022 – which followed pandemic-era supply chain disruptions and the war in Ukraine – developers are now facing increased pressure from contractors seeking higher bids. The situation is prompting debate over how to balance project viability with the need to address a persistent housing shortage, as some firms pause projects and others seek innovative cost-saving measures.
Construction costs and material prices are rising at a rate that is concerning for the market, according to David Musil, head of Penta Real Estate. The Czech Republic’s construction sector is facing renewed pressure from increasing expenses, potentially impacting future development projects and housing affordability.
While the latest figures from the Czech Statistical Office indicate price increases in construction aren’t as dramatic as the surge experienced in 2022, the underlying tensions are building. The rapid price escalation in 2022 was largely attributed to disruptions in supply chains stemming from the COVID-19 pandemic and a subsequent reduction in the labor force following the outbreak of the war in Ukraine.
Construction prices rose nearly 13 percent in a single year during that period. However, as of October of this year, the year-over-year increase was 3.2 percent.
The pressure is now being felt in the bidding process, as construction firms are pushing for significant price increases in tenders issued by developers. “I am seeing strong pressure from construction companies to substantially increase prices in the selection processes for general contractors,” stated Evžen Korec, CEO of developer Ekospol.
Jakub Velen, a spokesperson for CPI Property Group, emphasized the need for extensive advance planning to allow firms sufficient time to participate in bidding processes and negotiate acceptable terms. This highlights the growing complexity of project timelines and cost management in the current environment.
Rising construction costs present a significant challenge for developers, forcing them to either absorb the increased expenses into their profit margins or pass them on to homebuyers. Given that property prices in major cities are already at extremely high levels, further price increases could dampen buyer demand and slow sales.
Dušan Kunovský, head of Central Group, noted that accepting contractor demands would necessitate a 15 to 20 percent increase in apartment prices.
Contractors Respond to Market Realities
Construction firms maintain that the issue isn’t solely on their side. “Construction prices are responding to market realities – wages, materials, capacity, and, above all, the extremely complex and lengthy permitting process,” said Jiří Nouza, president of the Association of Entrepreneurs in Construction. This underscores the broader systemic challenges impacting the sector.
Nouza cautioned against using construction halts as a tactic to pressure the construction sector, pointing to the numerous challenges already facing the industry. The association has consistently warned of a labor shortage, predicting a shortfall of 74,000 workers within the next five years, which would further complicate construction efforts. Insufficient domestic extraction of building materials also contributes to higher import costs.
CEEC Research, a consulting firm, has presented similar data, highlighting the lack of personnel and near-full capacity utilization within construction companies. “They remain consistently utilized at almost 95 percent, meaning the construction sector is operating at full capacity,” said Michal Vacek, director of CEEC Research.
This full capacity is a key factor influencing the current market. Kunovský explained that only six firms submitted bids for his latest tender, compared to the usual dozen.
Other Developers Proceed with Plans
Vacek warned that Central Group’s decision shouldn’t be taken lightly, as other developers could follow suit, mirroring the trend seen in 2022 when companies gradually scaled back new construction due to weak demand. However, the current situation appears different.
All developers contacted by news outlets affirmed their continued plans, driven by strong demand for apartments. Some, like Finep, added that they collaborate with stable partners, enabling them to maintain predictable and acceptable pricing.
Others plan to address higher construction costs by optimizing project designs. “In the coming years, we aim to emphasize optimal technical solutions during the design phase to minimize these cost impacts on construction,” said Dalibor Lamka, CEO of developer Trikaya.
Zdenka Klapalová, president of the Association for the Development of the Real Estate Market, encouraged firms to adopt similar approaches, acknowledging that high construction costs complicate project preparation for developers. However, she cautioned that halting construction could have long-term negative consequences, exacerbating the existing housing shortage due to limited supply.
She believes the solution lies in accelerating and streamlining project preparation, strengthening capacity in the construction sector and within government offices, and implementing reasonable urban regulations.
