Will we build another house?

Magdalena Milert

16 of October '24

Will we build another new house?

...

w skrócie
The crisis in the single-family home construction market in 2023 caused the number of homes being built to fall below 70,000, a drop of one-third compared to 2021/2022. The high cost of building materials, labor and restrictive lending rules were key factors that discouraged individual investors from building single-family homes. The year 2024 brings hopes for a recovery in the construction market, with more housing starts in the first four months by 53.2 percent compared to the previous year. The phenomenon of suburbanization and the problem of spatial chaos associated with single-family housing lead to increased transportation and infrastructure costs, as well as transportation exclusion in small towns. For more interesting information, visit the home page of the A&B portal

w skrócie

The crisis in the single-family home construction market in 2023 caused the number of homes being built to fall below 70,000, a drop of one-third compared to 2021/2022.
The high cost of building materials, labor and restrictive lending rules were key factors that discouraged individual investors from building single-family homes.
The year 2024 brings hopes for a recovery in the construction market, with more housing starts in the first four months by 53.2 percent compared to the previous year.
The phenomenon of suburbanization and the problem of spatial chaos associated with single-family housing lead to increased transportation and infrastructure costs, as well as transportation exclusion in small towns.
For more interesting information, visit the home page of the A&B portal

The year 2023 brought a serious crisis in the market for the construction of single-family homes by private investors. The number of houses built by Poles for their own needs fell below 70,000, a drop of a third compared to 2021/2022.

If we look at newspaper articles from the end of 2023 and the beginning of this year in the "single-family homes" category, most of them will have "crisis," "slump" and "extremely low" in the title. Indeed, comparing data from recent years, the number of homes with construction starts settling at less than 70,000 is the lowest since 2006. However, there is a narrative in the opinions of experts and analysts that 2024 could be a year of great motivation to start building a single-family home. Let's take a look at this process.

It all started a few years ago. We remember - in 2020, banks were granting loans only to a narrow group of potential applicants, requiring a high down payment - up to 40 percent. This made them difficult to access, despite attractive loan offers. At the time, the covid-19 pandemic made it much more difficult to go through the entire procedure for obtaining a building permit. Problems could already arise when looking for plots of land, selecting and adapting a design, as well as in offices, which for a time accepted documents in a specific way. The circulation of documents involved quarantining them before any of the employees even glanced at them. Matters were also not made easier by the remote work that a sizable number of officials were on, and the digital circulation in our offices... well, not everyone was familiar with it.

individual construction

own elaboration based on CSO data

As a result of these events, people began to build their own homes en masse not in 2020, the first year of the pandemic, when there was a lot of talk about moving out of the city en masse, at a time extremely conducive to remote work, but a year later. That's when we can read a peak in the number of construction starts.
Starting in October 2021, the Monetary Policy Council began raising interest rates at an unprecedented pace and scale[1]. This led to increases in loan installments and a reduction in the creditworthiness of Poles. In addition, the Financial Supervision Commission ordered banks to be more restrictive in their examination of creditworthiness, which significantly hindered access to credit.

NBP key interest rates at the end of the month

own compilation based on NBP data

The cost of materials and services continued to rise. Russia's aggression against Ukraine changed the situation in the construction market. Those who had been building had great difficulty continuing their investments, and the enthusiasm of those who were just planning to build a house weakened significantly. A sizable number of Ukrainian workers left Poland, going to the front, which resulted in shortages of professionals in the construction industry and an increase in labor rates.

sample screen shot from https://www.hurtowniastyropianu.pl/cena-styropianu/

Another disruption of the status quo and a rise in energy prices have raised the price of construction materials. Some materials have halved in price in a few months, while others have even doubled. By the end of 2022, the annual increase in construction costs was estimated at nearly 30 percent. The general uncertainty about the economic situation and the future of the real estate market caused many potential buyers to hold off on their investments.
The first half of 2023 was marked by depressed demand. With the announcement of the launch of the government's Safe Credit subsidy program, hopes were revived and the second half of the year returned with demand, but also prices to the levels recorded back in 2021. Creditworthiness and willingness to take out a home loan grew. The FSA liberalized the rules for creditworthiness testing, and the MPC lowered interest rates slightly. On average, creditworthiness increased by more than a fifth between January and December, according to calculations by Michal Kisiel, an analyst at Bankier.pl[2].
This translated into high prices. In cities with more than 500,000 residents, housing list prices rose by 5.5 percent quarter-on-quarter in Q4, and as a result were as much as 17.2 percent higher than a year ago[3].

BIK Housing Loan Demand Index

https://media.bik.pl/informacje-prasowe/833397/o-58-2-r-r-wzrosla-wartosc-zapytan-o-kredyty-mieszkaniowe-w-kwietniu-2024-r

The cost of building plots also rose throughout the year, by 0.5 to 2.5 percent, depending on the province, and by as much as 5 percent quarter-on-quarter in the largest cities[4]. However, the breathlessness was caught mainly by the individual construction sector. Private investors were primarily demotivated by the high cost of building materials and labor. The 2 percent Safe Credit program did not translate into the construction of single-family homes, with just over 20 percent of beneficiaries allocating funds for home construction, and nearly 60 percent of applicants were singles thinking of a small apartment rather than a sizable house.
We should also add that the law has changed. Regulatory changes have had a significant impact on Poland's construction sector, with stricter regulations on building energy efficiency, requirements for thermal insulation, mechanical ventilation and installation of renewable energy sources. All this came at an additional cost.

Safe Credit 2% loans

source: BIK

Although experts predicted that we would bounce back from the construction bottom the following year[5], according to the data, in the first four months of 2024, 64,600 apartments were completed, 14.8 percent less than in the same period of 2023[6]. At the same time, developers handed over statistically slightly fewer apartments for operation - 39.2 thousand units, or 3.4 percent less compared to the previous year. As much as 29.5 percent less, on the other hand, was built by individual investors - 24 thousand apartments.
Perhaps, however, this is still an echo of the unlucky year 2023. For, as it turns out, in the first four months of 2024, construction began on 81.3 thousand apartments - 53.2 percent more than a year ago[7].

Quarterly changes in housing prices compared to 2015 - housing price indices in the fourth quarter of 2023

CSO

It seems that after many months of fluctuations in demand, supply and prices in the residential real estate market, the situation is finally stabilizing. Supply in the secondary and primary markets has begun to recover, while at the same time the rate of price growth has slowed. Land prices have fallen, which promises to weaken the cost pressure for further increases in real estate prices, especially - of interest to us in this article - single-family houses. Land prices at the beginning of the current year averaged 236 zlotys per square meter, while a quarter earlier it was still 244 zlotys per square meter. This is the deepest decline since the second quarter of 2018[8]. This is due, among other things, to the fact that developers have ceased to be interested in plots of land in small towns.
The situation on the labor market has improved - salaries in Poland are rising faster than the cost of living, but, consequently, the prices of construction services have increased. As reported by the bankier.pl portal, as a result, the cost of building a house is rising faster than the wealth of the average Pole's wallet[9]. There also seems to be a leveling off in the labor market. The delay caused by Russia's invasion of Ukraine and the decline in the number of workers combined with the intensification of work in the development field has resulted in less capacity being recorded in the construction industry to carry out work on single-family homes[10]. Average prices increased slightly, but still more than during the housing market downturn in the second half of 2022 and the first half of 2023. Thus, the annual rate of price growth increased, which, combined with the decline in inflation, had the effect of raising the real growth rate of housing prices - to the highest value since the housing boom in 2007[11].

The rate of housing price growth in Poland - price growth in annual terms

Otodom and Polity Insight report on the housing market situation in Q2 2023

If we add trends from the housing market - for example, the steadily declining average usable area of a newly completed apartment in both the single-family housing and townhouse sectors[12]- we find that people are looking for cheaper solutions, often by slashing the square meters of a unit. Building a house is financially a bigger expense, and often much more stressful. When deciding to move, customers expect more stable solutions, and building a house is a multi-faceted challenge. Because the process takes many years, budgets currently needed for construction often turn out to be higher than from initial valuations and findings[13].

The single-family home construction sector is unlikely to recover rapidly, because although the Monetary Policy Council (MPC) cut interest rates by 1 percentage point before the election, the benchmark rate continues to be relatively high. Bank mortgage offers are not low enough to start building a single-family home with lightness. Many families are balancing on the edge of creditworthiness. Experience in recent years has shown that costs can rise sharply during construction, further discouraging potential investors from taking construction risks. Private investors are also currently not helped by the high cost of purchasing land, services and construction materials. Sekocenbud data shows that in the third quarter of 2023, construction of a typical house was more expensive by up to 10 percent than a year earlier. If we compare the end of 2019 and 2022, we find that costs have risen almost 40 percent, not including the price of land[14].

What will this year bring? Many experts say that new home construction will finally level off. For me, however, the conclusion of the whole situation is that in uncertain times the big players are the strongest. It seems that the big developers are getting out of the situation with their hands. Those individuals who individually tried to cope with rising costs and delays had virtually no chance. Decisions to build were postponed, waiting for a better time.

It was also developers who largely took over the single-family home construction sector. The more and more eagerly built, doe houses have flooded the suburbs of Poland's larger cities. The houses offered by developers are usually terraced houses (segments) and semi-detached houses with a small plot of land. The size of these houses varies, but relatively small square meters prevail.

However, this trend seems to be slowing down now. Developers are reluctant to build single-family homes, as they are concentrating on building apartments, which are more profitable for them. In major metropolitan areas, single-family homes account for only 4 percent of their output. In addition, rising construction costs are driving up prices. Developer home offerings are clearly shrinking.

Area of homes offered by developers (share of offerings)

At the very end, it is also worth mentioning the broader context - suburbanization. Both privately built homes and those of developers are part of a trend that cannot be ignored. If you display for yourself any map showing migration movements, you will find that people are drawn not so much to the city, but to its agglomeration area. Looking for lower prices, they settle in the "periphery" of the boroughs. Most often, young families move to single-family homes, because only such a housing solution can reconcile the need for adequate square footage and the family budget (or rather, creditworthiness).

According to the Polish Economic Institute, the total annual cost of spatial chaos in Poland is 84.3 billion zlotys, and includes excess commuting, infrastructure construction and maintenance, and excessive traffic[15]. Per capita, this cost in 2021 was 2,200 zlotys per year, arguably much more now. Spatial chaos is the improper location of development and infrastructure, manifested in the excessive dispersion of development and the lack of coordination between the development of the housing stock and infrastructure, or, more simply, between what is built and how the areas need to be served infrastructurally. Acts of chaos can include both land de-fragmentation and construction on distressed land. The main reason is the over-availability of land for construction - 14 percent of our country's land area covered by development plans has been allocated for housing. While many developers complain about the lack of plots, data show that the area could accommodate far more people than the entire annual balance of internal migration. The chaos has been compounded over the years by a planning law that allowed buildings to be placed almost at will on 68.6 percent of the country's land area, based on "vuzetas" - zoning decisions.

With the revised law coming into force, investors are being urged to get their act together in time for the new procedure. Looking for data for this text, I found articles that dreaded the amendment. The ease of obtaining a WZ decision made construction grow in an unplanned way, and accustomed us to the idea that the right to build a house is a natural right of every Pole. Although the amendment is not a perfect solution, and many in the urban planning industry have comments on it, at least it happened and ordered municipalities to introduce a General Plan. The General Plan is a new mandatory document that is supposed to replace the existing Study of Land Use Conditions and Directions. It is to happen by 2026 at the latest. It will contain the principles of land use of a given municipality, and the record will influence what spatial character the municipality will adopt. It will be a local act that forms the basis for more detailed land use plans. Thus, it will not be an act against building itself, but only an attempt to legitimize strategic intentions, including in terms of serving the municipality with transportation.

Indeed, the problem of spatial chaos is strongly linked to another problem - transportation exclusion. It contributes to systemic exclusion where the lack of adequate transportation infrastructure and dispersed development limit access to public transportation, exacerbating the marginalization of some areas. The victims here are mainly those who do not have a driver's license. As it happens, they are largely children and teenagers, whose parents, eager to find a large enough apartment, to provide their kids with their own room, have chosen to live at home. It is these children who have to get up at 4:30 a.m. to catch the only bus at 5:15 a.m. to get to school for 8. There are plenty of videos on Tik-Tok showing what transport-excluded youngsters do during these hours - most often, having 1.5 hours of free time before school, they go to the Ladybug. Coming home from school means either skipping the last lesson to catch the bus, or waiting another hour in shopping malls or fast food places. Optionally , parents may appear here as pick-up and drop-off persons, and the effects of this arrangement are spoken of under the notion of "children raised in the back seat." He writes eminently about this whole situation in his book "Returnees. Reurbanization in the perspective of the life course" by Katherine Kajdanek. Many problems, mainly being a combination of the disadvantages of urban and rural life, are also discussed in the perspective of the aging of people settling in houses under the city. Here, in turn, I refer to Agata Twardoch's text "On old age in the interurban area" in "Self-Portrait" (No. 3, 2023).