Property, infrastructure push German construction to 23-year high

Figures released earlier this month by Germany's Federal Statistics Office show that revenues in Germany's construction industry rose in the first 10 month of 2017 with order books remaining high, fuelling hopes that Germany's broad-based economic upswing has still got plenty of legs.

The construction sector was one of the main growth drivers last year, with the German economy expanding by 2.5%, its strongest growth since 2011. The Ifo economic institute is forecasting 2.6% economic growth for 2018.

Construction industy associations are anticipating 4% growth in sales for the building industry, reaching levels last seen in 1995. The sector is benefiting from increased state spending on infrastructure, including bridges and roads, as well as the well-documented real estate boom.

The ZDB and HDB construction associations said in their joint forecast that nominal sales would rise by 4% to €117.2bn in 2018. “Construction companies are confident about the year 2018,” said Peter Huebner, president of the HDB association, which represents large industrial construction firms such as Hochtief. “The order books are well-filled,” said Hans-Hartwig Loewenstein, head of the ZDB association, which represents more than 35,000 small- and medium-sized firms that form the backbone of Germany’s construction sector.

Sales in residential construction are expected to grow by 3.5% to €43.1bn this year. Company investments are seen rising by 4% to €41.2bn while state spending on roads and bridges is forecast to increase by 4% to €32.9bn.

The associations added that, with construction prices expected to rise by 3.5% this year, however, overall sales in real terms are likely to grow by only 0.5% to reach €98bn.

Employment in construction is expected to rise by 15,000 to 820,000 people, although shortages of skilled workers are becoming increasingly apparent in the marketplace, said the associations.

Of more concern to trade organisations such as ZIA Zentraler Immobilien Ausschuss and broker association IVD is the steady fall in the number of building permits issued. These fell in the 11 months between January and November 2017 by 7.8% to 313,658 residential units, according to figures from Destatis, the Federal Statistics Office. The associations are increasingly vocal in their demands on Germany's potential coalition partners to put a stop to what they call "the madness of bureaucracy" which is slowing down the rate of new building in Germany.

Dr Andreas Mattner of the ZIA, the central lobbying organisation of the real estate and construction industry, says "We simply must improve the environment for new building regulations and investment." He warns about the increasing costs for building and hence rents: "The property tax reform, currently being pursued by the Bundesrat (Upper House), could lead to a rise of ten times current tax rates for tenants and owner-occupiers. We simply cannot permit this." 

The Destatis figures show that permits issued for new-build apartments fell by 3.5%, and for conversions by 21%. The heaviest fall (42.8%) was for permits for new apartments in multi-housing units – the sort frequently used for housing new immigrants and asylum seekers.

ZIA and IVD are demanding a much speeded-up process for re-zoning and the issuing planning permission, and the immediate granting of the tax incentives promised by Angela Merkel's CDU/CSU alliance in the recent election campaign. Mattner said, "In 1990 we had 5,000 building regulations in Germany, now we've got more than 20,000." This all needs to be radically simplified, he says.

Jürgen Michael Schick of the IVD says, "If it comes to a new Grand Coalition, there can be no question of simply continuing with the old regulatory politics. Any attempt to beef up the Mietpreisbremse (rental cap) or other restrictive measure, as demanded by several SPD politicians, must be thrown out as utterly obsolete." The potential coalition partners SPD and CDU/CSU have agreed to review the effectiveness of the Mietpreisbremse in the light of the past two years' experience. (The likelihood is it will be scrapped – REFIRE)