New Architecture Act: does it support the local market or only aims regionalization?

By setting several targets, the new Architecture Act aims to protect and preserve green space and the country's existing architectural heritage, promote an energy-conscious transformation of the economy, and encourage quality and sustainable architecture and environmentally friendly design. It also introduces new measures to transform the construction industry and an extensive right of first refusal of the Hungarian State for exports of construction materials and products. To ensure the traceability of imported and exported construction goods, distributors will need to register themselves.

Details of the New Act

The proposed legislation prescribes a registration to distributors for both imports and exports of products of strategic importance, in order to ensure full traceability of their flow. In case an export occurs, the Hungarian state has the option to acquire the goods concerned by its right of first refusal. Furthermore, the new Act stipulates that the recycling and resale of construction waste shall be carried out domestically.

One key provision is that the minister in charge of construction matters forbid the export of strategically vital construction materials and products for up to one year to ensure the security of supply within Hungary. This will be triggered if (i) a state of emergency or disaster occurs; (ii) in relation to the strategic construction materials or products if the prices increase by more than 150 % the rate of inflation, and if there is a shortage of such materials and products; or in case of shortage, a manufacturer with at least a 20 % market share ceases production or if a foreign manufacturer gains market dominance exceeding 60 % in the production of a particular building material.

If ownership of a plant manufacturing strategic construction materials or products is transferred, the Hungarian state also has a right of first refusal. The exact details of these provisions including the scope of the strategic construction materials or products are yet to be laid out in a separate government decree.

Domestic support or overreach?

One of the benefits of the new legislation is that it protects the domestic construction industry. By regulating imports and exports, the government can safeguard local manufacturers and potentially bolster locally produced goods and thus Hungary's economic growth. The state's right of first refusal is also a powerful tool for strategic developments in the production and trade of building and construction materials, allowing the government to secure essential materials for priority initiatives.

But there are potential snags too. The new registration requirement and state intervention in exports necessitate careful implementation to ensure compliance with EU and international trade agreements. Some might perceive the Hungarian state's right of first refusal as overly expansive, as the government could assert a substantial influence in the real estate market, potentially compromising the results of business negotiations and constraining the participation of domestic and foreign investors. Lastly, the strict regulation of imports and exports could curtail competition and technological advancements.

So, while the upcoming Architecture Act has the potential to bring positive changes to Hungary's construction industry, a balance between safeguarding domestic interests while not hindering the free flow of goods must be struck to ensure a safer, more sustainable and economically robust construction sector.

authors: László Krüpl, Máté Dura, Viktória Magyar