Why Are Construction Costs Rising in Georgia?
If you have been planning to build an apartment or office in recent years, you have likely noticed that
If you have been planning to build an apartment or office in recent years, you have likely noticed that rising construction costs have affected your budget. In December 2024, construction costs increased by approximately 4.7% compared to the previous year, while since February 2022, the growth has exceeded 20% (Source: Geostat). But what is driving this increase?
The most significant factor is rising wages. In December 2024, wages for construction workers increased by 19.7%, playing the biggest role in the overall rise of the construction cost index. The higher cost of labor directly impacts construction prices since labor expenses are one of the key components of construction.
Another reason is the rising cost of construction materials. The price of materials increased by 3% over the past year. While this alone does not cause a significant rise, combined with wage increases, it pushes overall prices higher. This is especially true for imported materials—if the US dollar strengthens or supply chain disruptions occur, construction materials become more expensive almost immediately.
Currently, machinery and transportation have a relatively smaller impact on overall prices. The cost of construction equipment has risen slightly, but its effect on the overall index remains minor. Meanwhile, fuel and electricity costs have decreased slightly, though not enough to offset the rising costs of wages and materials.
Demand and construction activity also influence prices. Over the past few years, the pace of construction has not slowed down, meaning that developers still need to hire workers and purchase materials, regardless of how much costs have increased. High levels of construction activity mean that companies are willing to pass on these rising costs to consumers.
Today, the primary driver of rising construction costs is wage growth. This trend is likely to continue if salaries in the construction sector keep increasing, ultimately affecting the prices of apartments and commercial properties.