No hope for growth in apartment building sector in Latvia

In Latvia, the construction of new multi-apartment houses has been stagnating for ten years, and the trend is not changing. Due to construction costs and supply chain disruptions, it declined further, Latvian Radio reported May 17.

“Construction of new housing has been sluggish for a long time. For comparison: the total area of housing built in Latvia was the same as in 2010, but it was two and two and a half times higher in Lithuania and Estonia,” Bank of Latvia expert Andrejs Semjonovs said.

The statistics on construction permits issued in the first quarter of this year do not indicate that this year there is a significant increase in the construction of multi-apartment buildings, and housing supply isn't keeping up with demand.

"According to data from the estate consultancy company Colliers, the number of new apartments available on the market and completed in Rīga has fallen to historically low levels in the last ten years. On the other hand, activity and demand in the housing market continued to grow, and apartments were increasingly purchased when they were still in the construction phase," said Semjonovs.

Last year, like elsewhere in Europe, the construction of multi-apartment houses was hampered by both rapid increases in construction costs and problems in the supply of building materials, and Russian warfare in Ukraine only exacerbates these problems.

"Accessibility of the metal is most affected at the moment, as Russia and Belarus supplied a significant proportion of total metal raw materials. It is also clear that overall construction costs are rising rapidly, with new housing prices rising further and availability likely to decline. The extent to which construction and availability will decrease is partly dependent on the success of housing developers in finding other suppliers and the price of this new raw material," Andrejs Semjonovs said.

At the moment, it is already apparent that supply is difficult and the price of housing will continue to rise and could even accelerate. Andrejs Semjonovs said that one of the considerations affecting the interest of developers in investing in new housing in Latvia is a matter of purchasing power.

“It should be noted that the major developers who work on the Latvian market also work in Lithuania, Estonia, and the Scandinavian countries, where the purchasing power of the population is higher. Housing prices are higher, and from this point of view alone, it is certainly more beneficial for this developer to make a larger share of investment in these countries than in Latvia,” said Semjonovs.

“In the context of purchasing power, the most important thing is that if we compare the average wages in Latvia, we assume that two people take the apartment credit, people can afford an apartment of up to €100 thousand on average in Latvia,” said Mārtiņš Vanags, Chairman of the Alliance of Real Estate developers. “An important issue, of course, is the rise in construction prices. If such an apartment costs not EUR 100 thousand but, let us say, EUR 130 thousand, then of course, it can reduce the range of customers.” 

Mārtiņš Vanags said that according to data from Colliers, 2,000 apartments were put into service in 2021.

“This is a pretty good indicator for Latvia in general, as there have been years when only 1,000 new apartments have been put into service. By comparison, on average, 4,000 new apartments are placed in service in Lithuania. Currently there are 3,250 apartments at the construction stage in Riga,” said Vanags.

Most of them will be put into service this year, a smaller share, next year. Consequently, a slight drop in apartment availability is expected compared to 2021.

“If 2,000 apartments were put into service in 2021, it looks like there will be around 1,500 this year and next year. It cannot be predicted quite accurately,” said Vanags.

Mārtiņš Auders, director of the Housing Policy Department of the Ministry of Economics, acknowledged that the availability of new housing in Latvia is insufficient. The country plans to promote the construction of apartment buildings in the next years in various ways.

“There are two major programs. One will be implemented soon. It is the construction of low-priced houses where rentals cannot exceed EUR 5 per square meter. It is planned to build 700 apartments. They will be built in regions other than Rīga and in municipalities bordering Rīga. Then there will be municipal apartments and municipalities will implement the construction of social houses, namely rental houses owned by the municipality. More for disadvantaged people. In this program, there are 1800 apartments to be built and renovated,” said Mārtiņš Auders.

 

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