SA building costs rise 85% in six years

Building costs as measured by the cost to the client (including building materials, labour, fuel and contractor profit-margin) have risen by about 85% in the past six years, driven by the rising momentum in activity in the building and construction industry over the period.

This rise was far beyond the overall pace of inflation in the economy, the South African Reserve Bank (SARB) pointed out in its latest quarterly bulletin, released on Thursday.

The SARB noted that, according to the Bureau for Economic Research, the cost of newly completed buildings to the client, known as the tender price, rose by 85% since 2000. Factors accounting for the strong rise compared to that of headline consumer inflation included the degree of competition in the tendering process, as well as the availability of labour and material inputs, and were strongly related to the stance of the business cycle, the SARB explained.

“When conditions are booming in the building industry, tender prices rise more rapidly than input costs as building contractors find themselves in a better position to widen their profit margins.
Inversely, during a recessionary phase in the industry, tender prices rise less rapidly than input costs.”

Meanwhile, the SARB said, the prices of building materials rose by around 60% from January 2000 to September 2005. This was well in excess of the rise in the all-good production price index of around 40% over the same period.

Increases in individual materials prices varied around the average of 60%. Examples exceeding the average included stock bricks, with an increase of 99%, face bricks at 87%, cement at 99%, structured steel products at 75% and cement building blocks at 108%. By contrast, the production price of glass rose by only 6% and that of floor and wall tiles by 9%.—I-Net Bridge

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