Last week, the Economist reported that according to German housing giant Vonovia, Germany’s crucial construction sector is on the brink of collapse, endangering the entire German economy.
The report notes the sector comprises 12% of the nation’s GDP, and employs one million construction workers.
Rolf Buch, the chief executive of Vonovia, said, “We are sending our construction industry into the abyss.”
The article pointed out that although the German government has committed to building 400,000 housing units per year, industry experts have estimated that the nation needs roughly 700,000 new units per year, “not least to house the more than one million Ukrainians” who have sought refuge in the country.
Last year saw only 295,000 new buildings built, producing a housing shortage in the nation which Buch referred to as a “societal tinderbox.”
The Economist noted that as energy prices have soared, inflation took off, and supply chain disruptions caused building material costs to rise, the industry has been crippled by the changing cost structures. At the same time, higher interest rates have increased the borrowing costs on loans which German builders frequently use to get their construction projects off the ground. Combined, those factors have been driving construction firms and property developers out of business, with 437 building companies going insolvent in the first four months of the year – a 20% year over year increase.
Clemens Fuest, head of the think-tank Ifo, said, “It is not a functioning market,” noting there is a plethora of remorseless red tape, particularly the “rent brake” as well as a number of strict environmental regulations.
In its spring report, the German Property Federation (ZIA) said that shortages in housing are likely at their highest level in 20 years, and that by 2025 the gulf between supply and demand could increase to 700,000 buildings. ZIA’s report estimated that 1.4 million people may be looking for housing in 2024, and, “if we don’t turn things around immediately,” they will not be able to find any.
