The construction industry is in crisis, it is not worth investing, the analysis warns

The construction industry is in a deep crisis, and the way out of it is a significant reduction in the prices of construction supplies. It is not worthwhile for investors to invest otherwise. However, regulations and legislation also complicate the work of builders. This follows from an analysis of the construction and housing market by the residential developer Central Group and the consulting company KPMG, which its representatives presented to journalists today. According to the analysis, the new construction law, which should enter into force this summer, and the associated digitalization bring uncertainty and fear of a total collapse of building permits.

Construction production showed a decline in almost the entire second half of 2023, and according to the analysis, this trend continued this year as well. The prices of building materials are on average 40 percent higher than at the beginning of 2021, and bricks, concrete and steel, for example, have started to become more expensive again. The number of building permits in the second half of 2023 fell by nine percent year-on-year. At the same time, apartment buildings recorded the biggest drop of 15 percent. According to KPMG Partner Pavel Kliment, the performance of construction production is thus driven by engineering, i.e. for example transport and energy construction.

According to the analysis, the problem complicating the construction industry in the Czech Republic is also over-regulation and considerations about the regulation of the housing market. According to Central Group CEO Dušan Kunovský, these steps will not lead to a revival of the market and many of them are unnecessarily strict. Shortening permit processes and simplifying legislation is also one of the recommendations of the Government’s National Economic Council (NERV). However, according to Kunovský, certain considerations of the Ministry for Regional Development (MMR), favoring tenants over landlords, could lead to the fact that owners prefer not to rent out their apartments and leave them vacant.

Its digitization, which is part of the new Building Act, should contribute to speeding up construction management. It should enter into force on July 1 of this year. According to Kunovský, however, it is incomprehensible that the implementing regulations, which are key to real digitization, and also how prepared the state administration is, are not known. According to the senior director of the section of public investment, construction and social inclusion at the MMR, Leona Gergelová Šteigrová, the concrete form of the first module of digitized construction management will be presented in April in Brno. At the same time, according to her, the state managed to train 4,000 officials in this system, so the first version of part of the system has been available to the office since March 1. According to her, it should resemble internet banking in its simplicity.

According to Kunovský, state programs for housing construction are also inefficient, which was confirmed by the National Audit Office in January of this year. According to him, the state spends billions of crowns on housing support, but according to the office, this has only a marginal effect on the housing market. Investors are also deterred from construction by the unbalanced financial participation of investors in construction, as well as the fact that Prague lacks a city-wide concept of construction and financing of school construction.

According to an Ipsos survey of 1,000 respondents and presented at the conference today, 45 percent of respondents perceive the biggest obstacle to building development to be lengthy and complicated building permits. According to 30 percent of them, the state’s overall concept of how to support construction is lacking.