In the housing sector, we already have plenty of problems to deal with. Limited housing supply, unreasonably long permitting times, high land costs, rising financing costs, and an international supply chain that in recent years has accustomed us more to upheavals than to stability. In this already challenging environment, the prices of construction materials are rising once again.
The latest data from the Statistical Service should not be viewed as just another economic indicator. In July, the Construction Materials Price Index rose by 3.33% compared to a year earlier, reaching 123 points, based on a 2021=100 base. Even larger increases were recorded in key categories of materials used daily on construction sites: 6.61% for electrical supplies, 6.58% for plastics, 6.14% for aluminum and other metal products, and 5.12% for wood products.
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Of course, it is important to be precise. The 3.33% increase in material costs does not mean that the total cost of building a home rose by the same percentage. Materials are just one—albeit important—factor in determining the final cost. More importantly, however, this new increase is not starting from a low base. The relevant index is now approximately 23% higher than in the base year of 2021.
This is where part of the housing debate lies—one that we in Cyprus often overlook. We talk—and rightly so—about home prices and rents. However, we talk much less about the cost of actually building a home.
Before a home reaches the market, it goes through an entire process that includes purchasing the land, planning, obtaining permits, financing, and finally construction. When price increases occur at each of these stages, the costs accumulate. Some of these costs may be absorbed by the land developer or contractor. However, when costs exceed a certain threshold, the viability of a development is compromised. A project may be delayed or canceled, limiting supply, or it may be completed at a higher cost, affecting the final selling price. In both cases, the ultimate loser is the same: the person in need of a home. In the first case, they find fewer homes on the market, while in the second, they find them more expensive. This is precisely why construction costs must now be a central part of the public discussion on affordable housing. We cannot discuss only how to limit the final price without also discussing how to reduce the costs incurred along the way.
Permitting is a prime example. Every month of delay entails additional financial and administrative costs, while increasing exposure to potential price increases for materials and services. A development project that could begin today but instead starts 1–3 years later does not simply result in homes being delivered later. As a rule, it also increases the cost at which these homes will eventually reach the market. And when this happens across the entire market, we end up with both lower supply and higher costs. The worst possible combination for housing affordability.
The solution is obviously not to believe that the government can control international prices for metals, lumber, or plastics. However, it can focus on the costs we can influence in Cyprus. It can drastically reduce the time required for permitting. It can limit unnecessary procedures and repetitions. It should support technology and modern construction methods that reduce time and costs. It should encourage a greater supply of land and more housing units where there is demand. And any new tax, fee, or regulatory burden on the construction sector must be evaluated through a very simple question: how much will it ultimately add to the cost of housing?
Because affordable housing is not determined solely by the price the citizen is ultimately required to pay. It is determined much earlier, by the conditions under which a home is designed, permitted, and built.
If we truly want to address the housing crisis, we must discuss with equal seriousness not only the final price of a home but also the cost of building it.
*President of the Real Estate Development Association
