Construction costs, wars and labour shortages

In this chapter

• Building a new home became about 33% more expensive between 2020 and 2025; labour rose 41%.
• In 2022 materials soared with the war in Ukraine; in 2026 they rose again with the energy shock.
• Labour has risen by 5% to 8% every year since 2021: a sign of a shortage of workers.
• 6% VAT on residential construction only covers works started from late 2025 onwards.

Three shocks in six years

The construction cost index for new housing rose 12.2% in 2022, the highest in decades, and between 3% and 4% a year in 2023–2025. In August 2026 it was up 7.5% on August 2025, with rises in both materials and labour12.

Construction costs month by month, 2020–2026

Year-on-year change in the new housing construction cost index · % · Jan 2020 – Aug 2026

TableDownload CSV

• Total
• Materials
• Labour

Covid and Ukraine (2021–2022). In May 2022 materials were rising 19.5% a year; ceramic products more than 70%, steel and diesel more than 30%3. They stabilised in 2023–2025 but did not return to earlier levels.

Iran (2026). The attacks on Iran at the end of February 2026 and the disruption of the Strait of Hormuz pushed Brent crude above $100 and European gas up by more than 60%4. In August 2026 no material was cheaper than a year earlier; diesel and copper wire were up about 30%.

Construction costs of new housing

Change in the annual average of the index · % · 2019–2025

Cumulative since 2020Download CSV

• Total
• Materials
• Labour

Labour shortage

Labour is the cost that never stops: it rose by 5% to 8% every year since 2021, in annual averages, about 41% cumulatively between 2020 and 2025. The industry association AICCOPN/CPCI estimates a shortfall of 80,000 workers5. Third-party estimate

The sector depends on foreign workers. Social Security counted more than 600,000 foreign nationals paying contributions during 2025 in three sectors combined: administrative services, accommodation and food services, and construction6. In December 2025 about 117,000 foreign nationals were paying contributions in construction. New registrations of foreign nationals with Social Security fell 35% in the first eight months of 20257.

Taxes and licensing

Until 2025 new construction paid 23% VAT. The Montenegro government approved 6% VAT on the construction and renovation of housing, for works whose licence application or prior notice falls between 25 September 2025 and the end of 2029, with ceilings on sale prices and rents89. Since a building takes two to four years, the first homes covered will only be ready from 2027.

The IMF points to slow licensing as a structural cause. The Simplex Urbanístico licensing reform, from the Costa government and in force since March 2024, tried to shorten it. Average times before and after have not yet been measured (log item V10).