Contractors struggle with price increases: ‘My profit is approaching zero’

‘It has never been this extreme in the thirty years that I have been in construction,’ says Hans Mestemaker of Totaalgroep Groningen to OOG TV. He saw with dismay how the wood, insulation material and steel he needed became tens of percent more expensive. And that in a few months.

Mestemaker is project leader for the renovation of an apartment complex on the Molenweg in Haren. He estimates that the total construction costs will be about five to ten percent higher than budgeted. ‘But that doesn’t just apply to Haren, it applies to all projects.’

The coronavirus plays a role in the higher price. As a result, many factories scaled down production, while global demand for building materials did not decline. Incidents, such as last March with the container ship that ran aground on the Suez Canal, also pushed the price up.

This is reflected in the figures from Statistics Netherlands. Over the past three years, the import prices of wood, copper, iron and steel have sometimes increased somewhat, sometimes decreased somewhat. In recent months, however, price increases have followed price increases.

The fact that this is now causing problems is because a contractor often fixes the construction price in advance with the client. If the material prices subsequently make an unexpected swing, the construction costs for the contractor suddenly turn out higher than expected.

‘Wood currently has a daily exchange rate. You can’t arm yourself against that’, says director Fokke Ophuis of construction company Plegt-Vos. “Margins are under pressure.”

Construction company Kooi from Appingedam is also affected. At the moment, that company is building 31 apartments from the ground, near Haren station. Director Jan Emmo Hut calls it ‘absolutely not inconceivable’ that his profit there eventually ‘goes towards zero’.

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“Literally, you’re doing it for nothing.” And so some contractors call on their creativity, such as Mestemaker. ‘By increasing production speed, purchasing more efficiently and choosing other building materials, you hope that you can still catch up. But that is almost impossible, because of course the design is fixed.’

Already seen

In 2017 Nico Goeree of Accent Bouw from Een in Drenthe already experienced something similar. “We also lost then. The prices went up so much all at once.’

Goeree’s company builds catalog homes in Ten Boer, among others. To avoid a déjà vu, his company raised prices by about three percent in 2020, on top of the regular annual price increase. ‘I can remember that five years ago we sold homes for 169,000 euros. They now cost around 240,000.’

Richard Massar of the Bouwend Nederland sector association calls on contractors to look together with their clients at possibilities to (partly) pass on the unforeseen material costs, also for future construction projects.

‘Margins in construction are quite low. At a three percent margin, you did well. The current price increases can therefore be the difference between a small profit or a loss-making project’, says Massar.

Are the apartments ready on time?

And then keeping the numbers black isn’t even the only challenge. Due to the ongoing worldwide demand for building materials, delivery times are under pressure.

‘Usually you order certain types and dimensions of wood a week in advance. Now you have to wait months before you get them, hopefully.’ As a result, director Hut does not yet dare to say with certainty whether his apartment complex at the Harense station can be completed next spring, as the schedule prescribes.

They say we don’t know. We’ll call you

Jan Emmo Hut, contractor

‘It may well be the case that we still encounter purchases where the delivery time will become an issue. It doesn’t look like that yet, but we’ve been through that before.’

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As an example, he mentions a construction project in Sellingen, the completion of which has been postponed until further notice. The supplier has no idea when he can deliver a certain type of pump. ‘They say: we don’t know. We’ll call you,” says Hut.

Director Ophuis van Plegt-Vos agrees. ‘The demand is very great. America and China in particular buy a lot of wood. That affects the delivery to Europe.’

The temporary housing that his company is building in Ten Boer should be ready in October. The material delivery has already been completed, so that will also work, says Ophuis. ‘But nationally there are projects that have been delayed as a result. That can sometimes be weeks.’

For project leader Mestemaker, a different material or size sometimes offers a solution, if the delivery time is still unknown for the wood he actually wanted. As a result, the apartments on Harense Molenweg can be expected to be delivered ‘just before or just after the construction period’, according to schedule.

It’s a while

In conclusion, the situation in construction is exceptional at the moment, but remember that price fluctuations in general are of all times and of all markets. Or, as director Ophuis puts it into perspective: ‘Sometimes things go well and other times things don’t go well. Now it’s a bit of a struggle.’

Also read:
– Timber trade affected by Suez Canal blockade: ‘Maybe no more garden wood in May’
– The housing market in 2021: ‘What a misery’
Everything about the housing market in Stad

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