Increase in Construction Material Prices Pressures Developers

International factors and logistics issues are driving up costs for key construction materials like cement, sand, gravel and tiles. The costs weigh heavy on the construction industry, which foresees a significant reduction in its profits, as well as higher prices for final consumers. 

According to the Mexican Chamber for Housing Development and Promotion (CANADEVI), inflation will impact housing prices, which could increase up to 17 percent by the end of 2022. “An important rise in prices is coming. It has been developing since last year, but it is strong even in some materials that were not considered before, like copper, aluminum, wood and aggregates. This has significantly impacted housing developments,” said Alberto Moreno, President, CANADEVI in an interview with El Economista. 

INEGI’s sub-index of Construction Material Prices reported accumulated inflation of 16.9 percent between January and May 2022, which is higher than any previous registered periods and even higher than the annual rates of the past decade. Experts argue that inflation is mainly driven by the effects of the COVID-19 pandemic and the Russian invasion of Ukraine, with the latter being one of the major producers of aluminum and steel. 

Steel derivatives underwent the highest price increases, registering price hikes of more than 100 percent. By the end of May 2022, steel rod costs grew by 27 percent, but during the past five years, prices rose by over 122 percent. Metal sheet prices increased by 27.5 percent, steel wire went up by 19.6 percent and rebar costs grew by 20 percent. 

According to Moreno, the residential construction sectors will be the affected the most due to their steel products requirements. Final project prices are expected to rise between 14 to 16 percent. On the other hand, social sector projects are expected to cost up to 12 percent more. 

Moreno said that inflationary effects have not been reflected in the current housing prices but will become notable from 2H22 onward. This will likely affect the end user, too: “The companies have already had to put in money, steel is already 40 percent more expensive. The price will go up as the client increases its credit expectation," said Sergio Leal, President of the Board of Directors, Vinte.