Person holding a key and a sign in shape of a house

Material prices are already stabilizing, but the cost of labor in new construction increased by 8.1% in 2023, according to INE. The construction union estimates that the sector is short of 90,000 workers. Employers are preparing to announce wage increases.

The cost of building new homes continues to rise, now leveraged by an increase in the labor bill. For the last year and a half, the labor component has been getting more expensive and there are no forecasts of a drop, given the shortage of workers in Portugal and Europe. In fact, construction company bosses are preparing to announce wage increases.

As AICCOPN (the sector’s association) confirmed to DN/Dinheiro Vivo, the negotiation process is underway. If there isn’t a rapid paradigm shift in this activity, speeding up the introduction of new construction methods that don’t require so many workers, the fall in the price of housing in the country and the introduction of an offer more suited to the income of the Portuguese could be a mirage.

According to the National Statistics Institute (INE), the cost of building a new house rose by an average of 3.9% last year. This increase was essentially due to the 8.1% rise in labor costs. Building materials, the price of which began to rise with the pandemic and skyrocketed with the start of the war in Ukraine, are finally showing signs of stabilizing.

In 2023, it grew by just 0.9%, while a year earlier it had increased by 16.7%. According to José Matos, secretary-general of the Portuguese Association of Building Materials Traders, “supply chains are back to normal and prices have fallen. That’s the trend if there’s nothing disruptive in the coming months”.

There is, however, room for some materials to fall in price. According to INE data, the overall cost of these products fell by 2.2% last December compared to the same month in 2022. Coatings, insulation and waterproofing materials fell by around 20%, steel for concrete and profiles and mild and galvanized steel sheet fell by around 15% and the consumption of energy products fell by 10%. Conversely, ready-mixed concrete and sanitary ware saw year-on-year growth of around 10% and cement, paints, primers, undercoats and varnishes 5%.

13% increase

In December, labor costs rose by 7.5% compared to the same month in 2022. And there’s no sign of a downturn. Albano Ribeiro, president of the Portuguese Construction Union, estimates that there will be a shortage of 90,000 workers in the country to respond to the railroad, hospital and housing projects, among others, which are planned for the coming years. Another 15,000 will be needed to build the future airport, he says.

The problem has long been identified, but the low wages practiced by the sector in Portugal are not attractive to the 300,000 or so workers who have emigrated. The union leader is committed to increasing the incomes of those who are here, who, he says, “have been earning the minimum wage for years”. He has a proposal on the table for an increase of around 13%.

As he says, “we don’t want less than 900 euros for a first class worker, who now earns 780 euros”. Another demand is an increase in the food allowance from 6.5 to eight euros. Also because “it’s an untruth that construction workers have good salaries”, he stresses. DN/Dinheiro Vivo understands that this Friday the construction companies met at AICCOPN to discuss the new salary scale. It should be released to workers in a few weeks’ time.

In view of the low salaries in most construction companies, why have labor costs increased? The market has adapted to the shortage of workers and alternatives have arisen to meet the needs of construction owners. Today, “few construction companies have qualified workers in their structure. They focus on managing and directing the work,” explains a source linked to the sector. In other words, they resort to subcontracting services. On the market, there are independent workers, firms specializing in a particular trade and companies providing labour services.

These companies “have greater negotiating capacity, have adapted to a demand that isn’t being met in the market” and the services they provide “are increasingly expensive”, he stresses. A lot of high-end housing is also being built, which requires very specialized contracts. These companies also incur expenses such as food, housing when necessary, and the purchase of safety equipment, which all go into the cost of workers. In short, labor costs “are not directly reflected in wages”.

The solution to increasing the supply of housing for the middle and lower-middle classes and families on low incomes lies in off-site or modular construction, which doesn’t require as much labor, argues the expert. In his opinion, the country is still indexed to traditional, labor-intensive construction, which does not meet the needs of the Portuguese in terms of price and execution time. Finally, he reminds us: “Construction productivity has evolved less than that of the agricultural sector”.

Related article: The minimum wage has gone up… Are companies obliged to increase workers

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