2023.02.22
Record increase in construction costs
Recent figures from Statistics Sweden show that the construction cost index has risen sharply and the annual rate now amounts to 16.3 percent. Figures we have not seen since the 1970s in Sweden. Rising interest rates are an important explanation for the rise.
Statistics Sweden (SCB) has recently released figures for the development of construction costs up to and including January 2023. SCB's construction cost index for apartment buildings has risen sharply in recent years and now continued to rise by 2.2 percent in January, compared to December. This caused the annual rate to increase to 16.3 percent, which is the highest since September 1974.
An important explanation for the rise is that rising interest rates contributed to the fact that developer costs, which account for 18 percent of the construction cost index, rose by a whopping 6.7 percent between December and January. In one year, interest costs have risen by 146.1 percent.
Construction cost index for multi-dwelling houses excluding VAT
Source: Statistics Sweden / The width of the bars corresponds to the weight share of the building material group in percentage of all building materials when calculating the Construction Cost Index for apartment buildings. The height of the bars corresponds to the average price trend for each product group.
According to Statistics Sweden, building material costs increased by 12.7 percent between January 2022 and January 2023. In addition, all material costs increased, except for the cost of wood products, which fell by 13.3 percent after having turned a high level. The costs of reinforcing steel and flooring materials increased the most, by 25.4 and 25.0 percent, respectively. White goods also contributed to this increase by plus 12.1 percent.
Causes sluggish housing production going forward
The sharply increased construction costs are strongly contributing to the fact that the pace of new housing project starts in 2023 will be the lowest in several years. According to the analysis company Byggfakta's construction start indicator, the start of new housing construction was slow in the last months of 2022. The figures showed a nearly halving compared to the same period in 2021. And the forecast for 2023 looks even bleaker. The Swedish National Board of Housing, Planning and Planning expects approximately 33,000 housing starts this year, compared to 60,000 last year and 71,000 the year before that.
Catharina Elmsäter-Svärd, CEO of the industry and employer organization Byggföretagen, spoke about this on SVT.
– For companies, the concern is very great right now, the order books are not being filled at the rate that would be needed. We are heading towards a really crappy year in 2023, she tells SVT.
It's still being built properly
Construction starts outside the housing sector have increased rapidly. The construction starts indicator for other property construction, which is not residential, continued to rise by 2.0 monthly percent in January to yet another new record level – although a certain slowdown has been noted in recent months. As of January 2022, other construction has now increased by a full 44.9 percent. Large contributions come from the construction of public premises, especially health care, but office construction has also increased somewhat recently. On the other hand, construction starts are falling when it comes to industrial projects in Sweden, notes Byggfakta.
Text: Kent Oderud
