Rising construction costs are becoming an obstacle to the smooth rebuilding of many quake and tsunami-affected regions, sources close to the industry say.
Surging demand for the building of new houses and repairing damaged ones in areas affected by the disaster has led to price increases for all construction resources, including materials, transportation, and labor. Some people have gone as far as to refer to the situation as a “reconstruction bubble.”
According to building company sources, construction costs in quake and tsunami-affected areas have jumped by as much as 1.5 times from before March 11, putting a major burden on both disaster victims and local construction companies.
In Minamisanriku, Miyagi Prefecture, one of the most severely affected towns after the disaster, a company president, who used to run a fisheries processing factory, decided to rebuild his plant after his former one was washed away by the tsunami.
When he consulted a building company several months after the disaster, he was told that construction costs would be approximately 290 million yen. In June last year, the man applied for prefectural subsidies. His application was approved and the prefectural government agreed to cover 75 percent of the costs.
However, only about four months later, in October, when he asked three companies to estimate exact construction costs, all of them told him that the total process would require at least 400 million yen. The companies explained that labor costs and prices of materials have surged since March 11.
The man was able to cut the estimated price to 330 million yen, but he was told that he still had to cover the “extra” amount of 40 million yen at his own expense.
“I expected that costs would increase, but I never thought they would increase this much,” the man sighed. “I guess many companies are hesitant to rebuild their facilities.
As a consequence of the rising prices, some local businesses who suffered damage in the quake and tsunami are asking the prefectural government whether they can put off construction work despite having already secured governmental assistance, sources say.
The burden is also heavy for local construction companies. “Prices increase simultaneously with our work,” says a Miyagi Prefecture-based construction company official. “By the time we start working several months after we decide on a certain budget, prices have surged. Then we have to cover the increased amount by ourselves. The rise (in cost) is way too fast.”
Meanwhile, the situation has also affected public works, as contractors have put priority on private orders. Among all 591 public construction works bids between April and November last year in Miyagi Prefecture, 137 failed to be undertaken for various reasons, including lack of candidate contractors.
The ratio of failed bids has increased to 23 percent, a staggering 20 points more than the previous fiscal year. In the background is the fact that the prices of public construction works have been kept lower than those of private orders.
This is especially evident among small-scale public projects. To increase bidding chances, prefectural authorities have accumulated several minor projects into larger ones. If a construction job is not undertaken for four-consecutive times, prefectural authorities have decided to make exceptions by introducing negotiated contracts.
“The construction work surge (in the post-quake and tsunami period) has confused many companies in the industry,” says an official at the prefecture’s construction contract department. “To make bidding easier for more building companies we would like to request the central government relax the current regulations.”
(Mainichi Japan) January 22, 2012