German building industry faces new challenges, as local budgets shrink
It seems incredible, but it really does look like Berlin will have an airport worthy of its name by the end of October this year. Now, if you’re German, you’re probably stifling a laugh of derision when you hear those words – after all, you gave up taking those predictions seriously about five years ago, when the airport opening was already four years overdue. But this time – no, seriously – it really does look as if it’s going to happen. On October 31st.
These things are relative, of course, but under the circumstances we think that (assuming it happens) it’s a considerable achievement. In fact, that big building projects in Germany are close to operating on schedule AT ALL is little short of a miracle given the logistic complexities of material and personnel in a continent in lockdown.
And yet, according to the Corona Real Estate Index in Germany which takes regular pulse readings of the temperature on Germany’s building sites, by the 9th week of the corona lockdown, more than 90% of companies are reporting little or no problems with their supply of materials. The Munich-headquartered emproc SYS, which devised the index and which curates its weekly readings from a broad network of affiliated companies at the heart of construction, attests to the stabilization of phyical supplies in recent weeks. This is impressive, given the picture at the beginning of May, when many - particularly imported - materials were not getting through.
The problem now is a shortage of personnel, with many workers still locked down in their home countries, having fled to be with their families before the lockdown. But so far, German building sites are ticking along at a far breezier pace than many of their counterparts in Austria and Italy, let alone Spain and France.
It’s been a golden era for the German building industry, and despite corona, many developers aren’t abandoning their ambitious plans for the year yet. Sure, report many, permits and other bureaucratic impediments aren’t being handled as they should, with staff missing and Germany’s notorious digital deficit helping to slow things down. But in residential construction at least, the biggest developers such as Bonava and Pandion are expressing optimism about reaching their 2020 goals.
Their optimism is not misplaced, we think. There are other positive signs of Germany’s federal states taking seriously the mounting dissatisfaction with the slow pace of residential building to stem the steady upward price trend, and encourage building more affordable housing. In Hesse, for example, the state parliament has just voted with a big majority to approve serial housing construction with prefabricated parts in a modular system, the so-called type approval to be included in the model building regulations (MBO).
This is important, as it allows a house type that has been approved once to be built at different locations without having to go through the complete building permit procedure again, thus speeding up building around the state. It’s an encouraging start.
Barely six months ago we wrote in these pages that Germany could barely find companies willing to take on municipal infrastructure projects, so lucrative and less cumbersome were the myriad of other projects on offer in the private sector. The building industry had never had it so good - a decade of bulging order books, plentiful employment, and the fall-back of government and municipal work should the economic boom threaten to slow down.
Now, however, the shoe is on the other foot. As project developers draw in their horns to brace for the coming recession, municipal tax revenues from local industries are crumbling, while billions are now required in social support to protect workers from the savage cutbacks coming down the line. Those fall-back projects are now being deleted or postponed indefinitely, while public sector authorities are trying to claw back up to 10% on ongoing projects. Beyond immediate contractual obligations, many companies are starting to experience shrinking order books. It could begin to look like a gloomy scenario.
But not quite yet. As long as the government’s largesse is washing through the economy, we don’t really know what we’re actually swimming in. The hundreds of thousands on ‘Kurzarbeit’ or in receipt of direct grant aid to help withstand the COVID-19 shock don’t really know yet where they stand, and if their jobs are really going to still be there come the end of summer.
Still, experience tells us that Germany will get through all this better than most other countries. The lockdown here has been milder than elsewhere, and German management of the crisis is widely acknowledged to have been better than almost everywhere else. That’s not co-incidental, but the result of preparedness and, above all, wide-scale testing to locate and isolate potential pockets of infection to keep mortality rates low. The battle is not over. We’re not in the clear yet, but things are slowly looking up.
Even the traditional unease about opening up the cheque book to help pump-prime Germany’s less fiscally disciplined European neighbours is being sanctioned – for the moment, at least. It would seem churlish, after all, to put the boot in on those impetuous Italians until after we’ve enjoyed our well-deserved post-lockdown sojourn in Tuscany or on the shores of Lake Garda. And with Germany’s borders opening up, and a restrained form of normality returning to the nation’s cafes, bars and restaurants, who knows how sanguine - or even benevolent - people might become, when harsh September rolls around. Wasn’t this solidarity supposed to be one of the positive human side-effects of the coronavirus crisis, after all?