The housing market already faces enough challenges. Housing supply is limited, planning and permitting times can be unreasonably long, land is expensive and finance costs have risen. At the same time, global supply chains have brought more disruption than stability in recent years. Now, construction material prices are rising again.
The latest figures from the Statistical Service should not be treated as just another economic indicator. In July, the Construction Materials Price Index rose 3.33% year on year, reaching 123 points, with 2021 set at 100. Some key materials used on building sites recorded even sharper increases. Electrical materials rose by 6.61%, plastics by 6.58%, aluminium and other metal products by 6.14%, and wood products by 5.12%.
It’s important to be precise. A 3.33% rise in material prices does not mean that the total cost of building a home has risen by the same amount. Materials are only one, although important, part of the final cost. The bigger issue is that this latest increase is not starting from a low base. The index is now about 23% above its 2021 level.
Construction costs and affordable housing: the missing link
This highlights an important part of Cyprus’ housing debate that is often overlooked. We rightly talk about house prices and rents. We talk far less about the cost of building the homes that people need.
Before a home reaches the market, it passes through a long process. This includes buying land, design, planning and permits, finance and, finally, construction. When costs rise at each stage, the pressure builds.
Some of that cost can be absorbed by the property developer or contractor. But once costs pass a certain point, a development may no longer be viable.
A project may be delayed or cancelled, reducing the supply of homes. Or it may go ahead at a higher cost, pushing up the final selling price. In both cases, the person who needs a home loses out. In the first case, there are fewer homes available. In the second, the homes that are available cost more.
Why delays matter
This is why construction costs must become a central part of the public debate on affordable housing. We cannot focus only on how to reduce the final price of a home. We must also look at how to reduce the costs that arise before that home reaches the market.
Planning and permitting provide a clear example. Every month of delay brings extra finance and administrative costs. It also increases exposure to further rises in the price of materials and services.
A development that could start today but instead starts one to three years later does not simply deliver homes later. In most cases, it also delivers them at a higher cost.
When this happens across the market, the result is both lower supply and higher costs. That is the worst possible combination for housing affordability.
Construction costs and affordable housing: what Cyprus can do
The solution is not to assume that the state can control global prices for metals, timber or plastics. It can, however, focus on the costs that can be influenced in Cyprus.
It can cut the time it takes to authorise permits and remove unnecessary procedures and duplication. It can support technology and modern construction methods that reduce both time and cost. It can also encourage more land and more homes in areas where demand is strongest.
Every new tax, fee or regulatory cost placed on the construction sector should also be assessed through one simple question: how much will it ultimately add to the cost of a home?
Affordable housing is not determined only by the price a buyer pays at the end. It is shaped much earlier, by the conditions in which a home is designed, approved and built.
If we genuinely want to tackle the housing crisis, we must give the same attention to the cost of creating a home as we give to its final price.
(Translated from an article by Yiannis Misirlis, President of the Cyprus Property Developers Association)
