According to the strategy consultants EY-Parthenon, the crisis in housing construction is likely to improve from next year.
The enormously increased credit and material costs made it even more difficult to finance construction projects, according to a forecast published today and available to the German Press Agency. However, the market should find a new balance with falling inflation and politicians could intervene if the construction crisis persists. Meanwhile, the historically increased construction prices should at least normalize, it said.
EY-Parthenon expects all building construction in Germany to shrink sharply in 2023 for the first time in years. The price-adjusted construction volume is likely to fall by 2.6 percent to a good 301 billion euros, slightly less than before the corona pandemic. In 2024, the construction volume should then stagnate and grow by 1.9 percent in 2025. The construction industry is supported by the high demand for energy-related refurbishments, be it when replacing the heating system or installing photovoltaic systems.
Positive growth expected
For residential construction, the authors see a sharp decline of 3.1 percent this year, which will “slowly but steadily develop into positive growth” from 2024 onwards. “We believe that the slump in residential construction will not continue in 2024,” said Volkmar Schott, partner at EY-Parthenon. Construction costs and loan interest are likely to normalize and politicians should intervene in an emergency – for example with more new construction subsidies or new depreciation options in construction.
In particular, housing construction, which has been booming for years, has come to a standstill due to the sharp rise in interest rates on loans – which is weighing on the construction industry. The construction association ZDB expects a price-adjusted drop in sales of around seven percent this year. According to the Ifo Institute, many projects are being canceled due to high costs. Construction and housing industry associations expect only 245,000 apartments to be completed this year (2022: a good 295,000). This would fall far short of the federal government’s target of 400,000 new apartments per year – bad omens in the fight against a housing shortage and high rents.
Building materials remain expensive
EY-Parthenon believes that builders are in for a bit better days. Construction prices, which shot up between 16 and 18 percent depending on the area in 2022, are likely to adjust to general inflation, but not fall. Partner Björn Reineke said that rapidly increasing prices for construction services could no longer be enforced, but construction materials remained expensive.
The study sees levers for more efficiency, shorter construction times and lower costs on construction sites, for example with digitally optimized processes, serial construction and industrially prefabricated components. Up to 15 percent more residential units per year are possible with up to 10 percent cost savings. An example is Sweden. Prefabricated wooden elements are used there about nine times as often as in Germany. “Some Swedish companies can provide about 30 new housing units within eight days.”
