Insight into Construction in Latvia by the European Construction Sector Observatory

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Published by Simon Hardiman

The economic crisis caused significant falls in productivity in building construction (-61.8%) and civil engineering (-36.6%) between 2008 and 2010. Productivity is recovering, although figures for 2015 show that building construction (-31.5%) and civil engineering (-25.9%) still remain significantly below 2008 levels. Profitability has also been negatively affected. This is evidenced by a 13.9% decline in construction sector turnover to EUR 7.4 billion and a 13.3% decline in gross operating surplus to EUR 1.1 billion between 2008 and 2013. Construction sector employment also declined by 17.9% between 2007 and 2013. However, in contrast, the number of construction sector companies in Latvia grew by 14.6% between 2008 and 2014, reaching 25,202 in 2014.

The collapse of the Latvian housing market saw the house price index fall by 44.2% between 2008 and 2010 and the number of building permits issued decrease by 51.7% between 2008 and 2011. In 2015, the house price index remains 30.5% below the 2008 level. The housing market faces a number of important challenges. Social housing makes up just 0.4% of the housing stock and about 19% of households are in need of good quality affordable housing. In addition, government spending on housing benefit accounts for just 0.1% of GDP.

To tackle these challenges, the government introduced the Housing Guarantee Programme to provide mortgage guarantees to support the purchase and/or construction and renovation of first homes. Guarantees can amount to 10-20% of the loan value. In addition, the Law on Housing Support defines the principles of social housing and housing allowances for eligible beneficiaries (e.g. for the payment of rent and property management fees, and for housing renovations or adaptations).

The new construction law was adopted by the Parliament in July 2013 and came into force in October 2014. The key objective of the new law is to simplify the regulatory framework, shorten the pre-construction process, reduce the administrative burden and increase the construction of new buildings in Latvia. The new law also includes requirements for construction workers to better assure the safety of construction workers and the community.

Investment priorities for the development and modernisation of Latvia’s transport infrastructure, in particular roads and railways, are defined in the Latvian National Development Plan 2014-2020, the Transport Development Guidelines 2014-2020 and the National Roads Programme 2014-2020. EU funding is central to this work, with EUR 1.3 billion in EU funds allocated for transport projects for the 2014-2020 period. In addition, the Connecting Europe Facility (CEF) is supporting Latvia’s EUR 1.27 billion investment in the Rail Baltica Project.

Latvia is also taking action to improve the energy performance of residential, central government and municipal buildings, for which EUR 280 million in EU funds have been made available for the 2014-2020 period. ‘Increasing Energy Efficiency in Multi-Apartment Buildings 2014-2020’ is a scheme that provides grants, guarantees and loans to encourage and support multi-apartment building renovation projects. The scheme has a budget of EUR 166.5 million, including EUR 141.5 million of ERDF funding.

The Latvian construction sector is predicted to record negative growth in 2017 (-5.4%), with positive growth forecast for 2018 (+7.3%). However, the growth rate is expected to slow down progressively until 2022. Delays in the absorption of EU funds and the deferral and concentration of large infrastructure projects over the 2018-2020 period may lead to a construction ‘bubble’, which could cause price increases and may affect the quality of construction works.

The European Construction Sector Observatory is helping the construction value chain to confront the economic and social challenges that impact the construction industry. Through regular analysis and comparative assessments, the initiative aims to inform European policymakers and industry stakeholders on the market conditions and policy developments in the European construction sector. The key outputs of the Observatory include Country Fact Sheets that profile and analyse the construction sector in each Member State, Policy Fact Sheets on key sector-related policies in each Member State, and a series of Analytical Reports on the implementation of Construction 2020 Strategy objectives.

Visit the Observatory website to download analytical fact sheets and reports on Latvia and other Member States, and gain insight into the European construction sector.

Moderated by : Nadège Rigaudeau

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