The construction boom in Germany show little sign of abating despite problems ranging from a shortage of qualified workers to hefty price increases for raw materials and ongoing supply chain bottlenecks.
Figures released from the Federal Statistics Office show that last year's turnover figures for the construction industry topped the €100 billion level for the first time. After seasonal and price adjustments, this represented a 2.3% increase in orders over the previous year. Including price rises, the growth rate at end-2021 was actually 9.4%, helped by a surge of orders in December.
In fact, incoming orders in December were nominally 29.6% ahead of the same month in 2020, and adjusted for seasonality and price rises, were up 12.2% - the highest volume of new orders ever in a December.
The Statistics Office surveyed 9,400 construction companies with more than 20 employees to arrive at the industry figures. The surveyed companies averaged a total of 522,000 employees collectively over the year, up 13,000 (or 2.6%) on the previous year.
On a sectoral basis, commercial construction has been playing a dominant role, outstripping residential construction which has plummeted, the data show. The recent cancellation of the state's energy efficiency subsidies could lead to a further sharp fall in residential building, the industry fears.
According to Tim-Oliver Müller, the CEO of industry association Hauptverband der Deutschen Bauindustrie (HDB), "Commercial construction seems to have replaced residential construction as the locomotive for construction activity." While demand for housing had fallen sharply in November 2021, the order situation for commercial construction had improved significantly, he said. This was partly due to increased investment by the railways, while both commercial building and civil engineering were not as badly effected by the COVID pandemic as his association had originally expected.
As to why the sharp fall in residential construction over the last quarter of 2020, Müller suggests a number of reasons. "On the one hand, we attribute this to the fact that private house builders in particular are holding back on orders for the time being due to the significant rise in new construction prices - caused by strong increases in building material prices - in the hope that this is a temporary phenomenon," he said.
Another factor leading to the downturn in residential is the slowdown in building permits issued since the expiry of the Baukindergeld subsidy at the end of March 2021.
In the period of January-November 2021, a total of 341,037 building permits were issued in Germany for new-build and conversion projects, a rise of 2.8% over the previous year. Single-family homes rose by 1.2%, two-family homes by 24.6%, and multi-family homes by 0.5%. Notably, there was a sizeable fall of 24.5% in the number of permits issued for free-standing detached homes.
HDB's Müller also sounded gloomy about the recent expiry of the BEG subsidy promoting energy-efficient new housing construction, which could further dramatically hasten the decline of new housebuilding, "with projects already in the planning stage no longer looking feasible, and likely to be canned."
Looking ahead for construction as a whole for 2022, Müller said the industry was well-cushioned with healthy order volumes. "And, as we're assumin that the supply bottlenecks for primary products will calm down in the course of the first half of the year, we remain optimistic for production in 2022. We continue to assume a nominal increase in turnover of 5.5%, and 1.5% in real terms."
A new study by the Institut der deutschen Wirtschaft (IW) in Cologne takes a pessimistic look at the plans so loudly trumpeted by the new 'traffic-light' coalition government headed by Olaf Scholz, particularly those of building 400,000 new residential units annually, of which 100,000 would be 'socially affordable' and publicly funded.
The authors - Ralph Henger and Dr. Michael Voigtländer - take the view that the government's plans are simply unfeasible, as, apart from other reasons, there is a shortage of skilled workers in the industry. In any event, say the researchers, the goal of 400,000 units exceeds market needs - the current volume of about 308,000 units would be adequate, but they need to be built in the right places.
The government's ambitious plans to simplify, digitalise and accelerate housing construction are admirable, says IW Cologne, but are unrealisable. Apart from the intransparency of the financing for the project, the lack of skilled workers is now really slowing down residential construction. Across the industry, they say, 50% of positions for skilled workers can't be filled, with the figure rising to 73% for those with higher management skills. If such workers could be found, they say, it would at the expense of those working on critical energy-efficiency refurbishment - a conflict which they say the government has completely failed to address.
To achieve its climate protection goals, the government is driving refurbishment of existing housing and wants to expand its state subsidy programmes, including a tightening of its Building Energy Act (Gebäudeenergiegesetz). However, these added energy requirements threaten to even further drive up building costs, and stymie its building construction targets.
According to study co-author Dr. Michael Voigtländer, "The measures to modernise the building sector will not be enough to achieve the climate protection goals. Rather, an instrumental overall concept is needed that sets long-term investment incentives, and resolves the climate protection-housing cost dilemma."
Germany's home ownership rate has been stagnation for over ten years, keeping it anchored at the bottom of European league tables for owner-occupiership, along with Switzerland. The government has been looking for ways to lower the hurdles to home acquisition, including new plans to provide loans to replace equity capital for households who can't manage to raise enough capital to pay the often crippling ancillary purchase costs (broker, land transfer tax, notary charges, Grundbuch registration, etc.) that can easily amount to 13-15% of house purchase charges, depending on federal state.
Voigtländer has long been in favour of measures that lower this burden for potential buyers looking to invest long-term in the ownership of their own home. "This (the equity replacement loan) is certainly a sensible instrument to facilitate access to home ownership for owner-occupiers without involving major additional expenditure for the state," he says.. "Loan default insurance and better savings promotion can also be helpful here."
