Construction Costs up 23% in Europe in 3 years

The cost of building residential buildings went up 22% in the Eurozone between Q4 2020 and Q3 2023 exceeding inflation at 18% during the same period . For the EU as a whole costs went up 23%.

While most countries saw costs go up at similar rates, Bulgaria saw costs go up at 90% in local currency while costs in Italy and Finland went up broadly in line with Euro inflation at 18% during this period. The table below shows the percentage change in the cost of construction of residential buildings between Q4 2020 and Q3 2023:

Country/Region% Change
Bulgaria90.9
Slovenia36.4
Lithuania36.4
Estonia35.6
Czechia34.8
Germany25.1
Spain23.3
EU 2723.3
Sweden23.2
Portugal22.8
Norway22.5
Euro Area 2022.4
Austria22.4
Euro Area 1922.4
Cyprus22.0
Latvia21.1
Greece19.9
Netherlands19.5
Denmark19.1
Italy18.3
Finland17.9

Construction costs fed though to to house prices, which went up 12% in the Eurozone and 13.6% in the EU as a whole during this period despite a dramatic increase in interest rates. Property prices in Hungary and Estonia increased at 46%, while Lithuania and Iceland went up by 45% and 43% respectively. On the other side, house prices in Cyprus went up just 0.56%, by 3.9% in Germany, 8.9% in Italy and 10.4% in France. Spain and Portugal saw increases of 15.3% and 30% respectively.

Prices in Portugal have gone up far in excess of construction costs, but as the chart below shows, the pace of construction is a fraction of what it was in 2000 and it really never recovered after bottoming out during the financial crisis. Meanwhile foreign demand and increased migration have lifted demand for the few houses that are being built.

Post pandemic interest rate rises have acted as a damper on housing demand. If they come down over 2024 countries like Cyprus, Germany, France and Italy that have seen prices go up at a lower rate than inflation may see prices go up substantially as increased buyer demand can only be met at the new higher costs of construction.