In 5 years, the cost of building a house in Brazil has increased by almost 50%

RIO DE JANEIRO, BRAZIL – The cost per square meter of building a house in Brazil has increased by almost 50% in the last five years.

Data from Sinapi (National Research System of Costs and Indices in Construction) show that the average value of the square meter of a building increased by 47.43% from the end of 2016 to the end of 2021, from R$1,027.30 to R$1,514.52 (US$273). During the same period, the cumulative inflation was 28.15%.

The values take into account expenditures for labor and materials. Costs for land, projects, and licenses, among others, are not included.

CONSTRUCTION MATERIAL

The reason for the recent trend, according to experts interviewed by UOL, is the skyrocketing prices of construction materials, especially in the last two years during the Covid 19 pandemic.

The Sinapi Index, calculated by IBGE (Brazilian Institute of Geography and Statistics), consists of two components: Labor and Material. In the first case, costs increased by 21.84% in the last five years, below the inflation rate of 28.15%. But the cost of materials has skyrocketed 71.32% since 2016 – two and a half times the inflation rate during that period.

According to economist Ana Maria Castelo, project coordinator at Ibre/FGV (Brazilian Economic Institute of the Getulio Vargas Foundation) in São Paulo, price pressures were more significant during the pandemic. Labor costs increased by 9.27% in two years, while the cost of construction materials increased by 50.26%, Sinapi said.

Especially in the last two years, building materials have increased sharply, making it more expensive for Brazilians to build. In 2020 and 2021, this effect was partially mitigated by lower interest rates. This allowed families to finance the purchase of construction materials and their buildings. The question is whether we will stop having this low-interest rate situation.

The average price for square meters of construction in Brazil.

December 2016: R$1,027.30 (general index); R$496.09 (labor); R$531.21 (materials)
December 2017: R$1,066.68 (general index); R$521.71 (labor); R$544.97 (materials)
December 2018: R$1,113.88 (general index); R$534.66 (labor); R$579.33 (material)
December 2019: R$1,158.81 (general index); R$553.17 (labor); R$605.64 (material)
December 2020: R$1,276.40 (general index); R$566.07 (labor); R$710.33 (material)
December 2021: R$ 1,514.52 (general index); R$ 604.46 (labor); R$ 910.06 (material).

WHY?

Experts interviewed by the UOL say the cost increase is due to supply and demand pressures on prices.

“It was a perfect storm,” Ana Maria Castelo summarizes. “During the pandemic, there was a breakdown in global supply chains, disrupting the production of many materials. And the demand for building materials began to increase.”

The economist explains that prices of metal raw materials increased during the pandemic due to production difficulties and high demand in several countries around the world.

This affected the prices of critical raw materials for construction, such as steel, making rebar and iron pipes more expensive. Most of which are produced in Brazil. Ceramics were also affected by the closure of industrial kilns.
In addition, the rise in the dollar exchange rate has driven up the cost of imported products.

On the other hand, according to Carlito Lira, vice president of Anamaco (National Association of Building Materials Distributors), Brazilians began to renovate and build more during the pandemic.

During the pandemic, building materials became an important commodity. Since the population stayed at home a lot, they devoted themselves to renovation and construction. The industry also had difficulties when it came to raw materials. Many are imported, and sometimes the national production park was overwhelmed.

The increase in incomes did not go hand in hand with construction costs

IBGE data show that the average income of Brazilians has not kept pace with the rise in construction costs.

According to IBGE’s Pnad Continuous (Continuous National Household Sample Survey), the average income of Brazilian workers in the quarter from August to October 2021 (latest data) was R$2,429. This figure reflects an increase of 21.03% over five years – lower than inflation and the rise in construction costs.

In other words, construction costs are rising, but family income is not.

“When inflation and income increases are not compatible, it affects people’s purchasing power. But because they stayed at home for a long time during the pandemic, construction costs increased greatly,” says Lira from Anamaco.

WORKFORCE

Unlike materials, labor has not put more pressure on construction costs in recent years. Professor Roy Martelanc, coordinator of the postgraduate course in real estate management at the FIA (Foundation of the Institute of Administration) in São Paulo, attributes this to unemployment.

The price of labor doesn’t matter as much in the construction industry because there are still many unemployed people. So the root of the problem is the increase in demand for materials.
Roy Martelanc, professor at FIA

In 2022, Martelanc says construction costs will depend on the demand for materials and supplies. “In the current scenario, for example, demand for new homes has already declined. I can also imagine a reversal in construction-unless a new wave of heating that’s not currently on the radar.”