Germany

Overall construction activity

In the past two years, the construction sector was a stabilising power for the economy. Adding 2020 and 2021, Germany’s GDP declined by 2.3 % in real terms. On the other hand, total construction investment in those two years rose in real terms by 3.2 %. The same picture can be seen in employment. Overall employment fell by 1.0 %, whereas a solid growth of 2.4 % in the construction sector could be seen.

2021 saw a new all-time-high of the volume of gross fixed capital formation construction of 414 billion Euro. The real growth rate in civil engineering (+1.6 %) was three times as high as in building (+0.5 %). Whereas house building showed a real growth rate of 1.3 %, non-residential buildings suffered a decline of 1.3 %.

Within the problems that the construction sector faces, two are predominant. First, the ongoing lack of skilled construction workers, which three of four companies see as a major problem for their own business. Second, the lack of construction materials, had a breaking effect on construction production in 2021. 

Expectations for the construction sector in 2022 are still positive. At the beginning of the year economic research institutes predicted a growth rate of 2.5 %. Under the light of the war in Ukraine, this expectation needs to be downgraded. At this moment (end of March), it is problematic to figure out how the impact of the Russian invasion in Ukraine will influence the construction sector in Germany. In some materials (steel for reinforcement of concrete), nearly 50% of the material used comes either from Russia or the Ukraine.

In 2021, orders for the construction industry had a value of 94.6 billion Euro, 9.4 % higher as in the previous year. The volume of permits for new buildings (excluding civil engineering) came close to 110 billion Euros, 8.0 % more as in the previous year, especially due to rising construction prices. Gross fixed capital formation construction is expected to grow by 1 % this year in real terms. Due to massive rises in the prices for construction materials and energy, construction prices are likely to grow by 7.0 % this year.

Housebuilding

The dominating subsector (62% of total construction investment) reached an all-time low in 2009. Since then, it has been an ongoing success story. Until 2021 investment in real terms grew by 39%, the number of new flats and houses coming to the market doubled to more than 300,000 units. 

The most important reasons for this development have remained unchanged in this period. The high number of immigrants, record low mortgage rates, extremely high demand for new flats in agglomeration areas, rising disposable incomes of private households and the search for investments with higher yields than the capital market has to offer. 

Between 2010 and 2021 investment into new houses showed a very high growth rate of 8.7 % each year. Nevertheless, the subsector stands for just one third of total investment in the residential sector. House building is still dominated by rehabilitation and maintenance works, although the growth rate since 2010 was far less impressive with only 4.0 % each year. 

The new federal government has set the stakes for the legislative period. First, it intends to raise the number of new flats and houses coming to the market to a level of 400.000 units per year. 100.000 of these flats should be created in the social housing sector. Therefore, the subsidies for this program will be doubled to 2 billion Euros this year and to 3 billion Euros in 2024. The federal states, responsible for this program, will add the same amount of money each year. 

High on the political agenda is climate policy. Since 2005, all governments have wanted to reduce CO2 emissions from the building sector. Since the implementation of the subsidy programme in 2006, the state-owned KfW-Bank has pumped around 67 billion Euros into the market for investment into the existing housing stock (especially better insulation and modern heating systems). For new houses, the KfW-programme was abruptly stopped at the end of January 2022. New subsidies will only be given to the so called “KfW-40-Standard” which means, that the new building uses only 40 % of the energy of a “standard building”. This is a challenge for both the construction and the real estate companies, as construction costs per square metre are nearly 400 Euros higher than in the standard building. 

One major problem to reach political aims in the number of finished flats is the lack of developed properties in the agglomeration areas. Prices per square metre of properties in these areas have risen by 155 % to 1.210 Euro in the past 11 years, whereas the sold area was reduced by one third. 

It is expected that in 2022 about 315.000 flats or houses will be finished. Once again, demand will be clearly missed. Therefore, prospects remain positive despite the future consequences of the Corona pandemic or the war in Ukraine.