Experts see no rapid recovery in construction industry
The construction industry in Germany is in crisis. High construction costs and rising interest rates burden the sector. The consulting firm EY-Parthenon expects a recovery only in a few years. A turnaround is anticipated, according to experts.
Increased interest rates, high construction costs, cancelled projects: The construction industry is struggling, particularly in residential construction. A visible recovery in civil engineering is predicted by EY-Parthenon to only begin in 2026.
"Although many problems and complications from the past few years such as supply chain issues have been resolved, issues such as high material costs, labor shortages, rising wage costs, limited construction space, and also rising financing costs remain," states an analysis obtained by the German Press Agency.
Will private builders return to the market?
"Despite the currently challenging situation, we expect medium-term stabilization," says Bjoern Reineke, Partner at EY-Parthenon. "Material costs have stabilized, supply chain issues have decreased. Driving forces behind the housing market demand such as migration and urbanization remain unchanged. Projections indicate a population increase of up to one million by the middle of the 2030s."
The experts expect that the readiness of private individuals "to build will prospectively increase." Currently, there is much uncertainty. "However, if disposable income rises after wage increases due to inflation adjustments and especially if more favorable financing conditions make homeownership more affordable again, then the single-family home will once again be attainable."
The consultants expect a decline in real construction volume of 1.8 percent in 2023, following a decline of 2.2 percent in 2022. "We currently assume that the market will stabilize from 2025 with a slight plus of 0.3 percent and will grow again with 1 percent from 2026," predict the authors. While the residential construction sector is expected to regain dynamism from 2025, economic construction and public construction are not expected to recover until 2026.
Construction volume 2023 fell for the third time
According to EY-Parthenon, the real construction volume fell for the third consecutive year in the previous year by 2.2 percent to 293 billion Euros. Significant declines occurred in the construction of single-family and two-family homes as well as in commercial construction of apartment buildings.
The residential construction sector in Germany has been stagnant due to significantly increased interest rates and construction costs for some time. The construction industry has become a cause for concern for the German economy. The German Construction Industry Association expects a turnover decline this year.
2023 saw the completion of 294,400 housing units according to the Federal Statistical Office, slightly fewer than the previous year (295,300), but more than expected by economists and the real estate industry. The federal government had aimed for 400,000 new housing units per year in the coalition agreement.
- The economic forecasts for the construction industry in Germany are not promising, with experts predicting a recovery only in a few years due to high construction costs and rising interest rates.
- The real estate market in Germany is currently facing challenges, with the housing construction sector being particularly affected, causing concerns within the society.
- The Federal Ministry for Building and Housing is closely monitoring the situation in the construction industry, recognizing its significant role in the broader German economy.
- As a result of these challenges, the completion of apartment buildings has seen a decline, highlighting the need for innovation and strategies to revitalize the housing construction branch.
- Despite these difficulties, some experts believe that the readiness of private individuals to build single-family homes might increase in the future, provided that disposable income rises and favorable financing conditions are introduced.
