Constructing an Economic Bellwether


The construction industry has become something of a bellwether for Hungary’s economy. When the financial crisis really began to bite, real estate was hit hard. There is a grim sort of irony here, given that what ended as a near-global meltdown originally started in the sub-prime mortgage market in the United States, but in next to no time developers found the banks had either stopped lending entirely, or only under the most stringent of terms. Projects were suspended or abandoned. Cranes, now almost omnipresent, all but disappeared from the cityscape.

How those tables have turned. This week the Central Statistical Office produced its latest data on the output of the construction sector, which showed a climb of 24.4% year-on-year in August. Based on seasonally and working day adjusted indices, construction output increased by 1.9% in August compared to July. For the January-August period, output was up 22.6% y.o.y. In absolute terms, that output could be measured at HUF 327.9 billion in August and HUF 1.8 trillion for January-August. This is now a seriously healthy business sector, and one enjoying considerable growth.

But it has also become a bellwether in another field: exposure to the national labor shortage. The point is made several times in our Special Report inside this issue that costs are rising and completion dates slipping as it becomes ever harder to find experienced carpenters or bricklayers or plasterers. And that is having its own knock on effects.  

Back in mid-August, reported that a shortage of firewood and consequently higher prices are expected this winter. That’s not down to a sudden shortage of trees in the Hungary, but rather the people needed to turn those trees into firewood; woodcutters have been leaving the countryside I record numbers to come to Budapest and work in the construction sector. According to the publication, firewood sellers say they have never experienced such a shortage: prices have risen 13.5% y.o.y., says.

Wood has always been one of Hungary’s more numerous natural resources, even after the loss of Transylvania’s forests post-Trianon. According to 2010 data from U.N.’s Food and Agriculture Organization, 22.6% or about 2,029,000 hectares of Hungary was forested. Little has changed since then: the CIA World Factbook entry for Hungary, last updated this month, puts the current percentage of forested land at 22.5%.  

When I first came here in the late 1990s, one of the first things that struck me was that it was more common to see wooden scaffolding than metal. Even modern houses in the countryside and designer flats in the cities will frequently feature a log burning stove, often covered in ceramic tiles, in a corner of the lounge. But a shortage of firewood doesn’t just mean the Christmas fire for the well-to-do becomes a little more expensive; it also has serious social implications in a country where, for many of the poorest, wood remains a primary source of heat in winter.  

The construction industry is not only important in its own right, once again a significant contributor to Hungary’s GDP. As it battles to overcome the challenges of the labor crisis (made more urgent for it by the need to complete projects before the VAT rate for new homes returns from 5% to 27% on January 1, 2020), it is also impacting other sectors. Any way you look at it, the real estate revival matters.

Robin Marshall



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