What happened
The latest housing analysis from BBVA's research department reveals that rising costs threaten the profitability of housing construction in Spain. According to Voz Populi, more expensive materials resulting from the war in Iran could affect the development of new projects. This phenomenon recalls the impact of Russia's invasion of Ukraine in 2022, which also pushed up raw material prices.
The BBVA report highlights that rising construction costs limit profitability, which, although it has improved slightly, remains significantly lower than in other European countries such as France and Germany. Profitability in Spain went from 3.1% in 2023 to 4.1% in 2024, but it is still 12.5 percentage points below the historical average in these countries.
The situation is worse for small and mid-sized companies, which face narrower margins. Current margins are 1.3 points lower than at the turn of the century, hurting companies' ability to invest and grow. In addition, low asset turnover and heavy reliance on own funds for financing contribute to this low profitability.
Why it matters to a construction company
Rising costs directly hit small and mid-sized construction companies, which already operate on tight margins. According to the BBVA analysis, these companies are the most vulnerable to raw material price swings, which could limit their ability to take on new projects.
In a market already strained by a lack of supply, construction companies' ability to maintain profitability is crucial. Land scarcity, slow administrative procedures and more demanding regulation are factors that complicate the picture even further for these companies, which must find ways to adapt to an increasingly challenging environment.
The practical consequence is that construction companies must rethink their business strategies, looking for ways to cut costs and improve operational efficiency. This could mean anything from renegotiating contracts with suppliers to investing in technology that allows better management of resources and time.
What changes in day-to-day site work
The workflow on construction sites is affected by rising material costs. Construction companies must adjust their budgets and schedules, which often means renegotiating terms with subcontractors and suppliers. Purchasing management becomes more critical, with the need to compare prices and look for cheaper alternatives.
In terms of quantity takeoffs and payment certificates, companies must be more precise and rigorous. Every line item must be reviewed down to the last cent to avoid budget deviations that could compromise the viability of the project. The pressure to keep costs under control is constant.
Site managers and administration managers are the first to notice these changes. The need to constantly adjust the numbers and ensure project profitability falls on them, making their role even more crucial in this context.
Specific cases
Suppose a mid-sized construction company is working on a new housing project. With rising costs, this company might be forced to revise its initial budget, looking for ways to cut expenses without compromising quality. This could mean renegotiating contracts with suppliers or looking for alternative materials.
Some companies are choosing to adopt construction management technologies that give them greater control over their costs and schedules. These tools can make it easier to compare quotes and optimize resources, although they require an upfront investment that not every small and mid-sized business can easily afford.
For these measures to work, it is crucial that companies have a trained team willing to adapt to new ways of working. Internal communication and the ability to respond quickly to changes in the market are decisive factors for success.
Data and context
The BBVA report shows that construction profitability in Spain has improved slightly, going from 3.1% in 2023 to 4.1% in 2024. However, it remains below the average in France and Germany, according to Voz Populi. This gap widens for small and mid-sized companies, which face greater challenges in staying competitive.
In the context of the sector, the shortage of housing supply remains a significant problem. According to CaixaBank Research, Spain has accumulated a housing deficit of more than 730,000 units, which indicates an insufficient response in new-build construction.
What the data do not say is how these figures affect the daily lives of companies and their workers. The pressure to maintain profitability in an environment of rising costs is a reality that construction companies must manage day by day, constantly looking for ways to adapt and survive.
Risks and limits
Rising costs pose a significant risk for construction companies, especially in terms of schedules and budgets. Projects may be delayed or even halted if costs exceed forecasts, which affects the company's viability and reputation.
In some cases, taking on new projects does not pay off if margins are too tight. Companies must evaluate each opportunity carefully, considering not only direct costs but also the risks associated with market volatility.
Organizational risks are also important. A failure to adapt to new technologies or working methods can leave companies at a competitive disadvantage. It is crucial that construction companies invest in training and developing their staff to face these challenges.
What a company can do now
Companies can start by reviewing their internal processes to identify areas for improvement. Implementing management tools that allow more precise control of costs and schedules is a concrete step that can make a difference.
When making decisions, it is important to consider not only the immediate cost but also the long-term impact on profitability and the sustainability of the business. Evaluating different scenarios and preparing for uncertainty is key.
A realistic next step is to take part in free pilots with tools like Bloqbase, which are being tested with real companies in the sector. This lets construction companies experiment with new technologies with no upfront financial commitment, evaluating their impact before a full rollout.
Sources
Voz Populi: https://www.vozpopuli.com/economia/otra-amenaza-para-la-vivienda-el-alza-de-costes-por-la-guerra-estrecha-los-margenes-de-la-construccion.html