Italy

Overall construction activity

The recovery in Italian GDP exceeded expectations in 2021, following a sharp decline in 2020 due to the effects of the COVID-19 pandemic. The Italian National Institute of Statistics (ISTAT) reports an increase in 2021 GDP of 6.6% compared to 2020. A remarkable contribution to growth was provided by domestic demand, especially by gross fixed capital formation, which rose in volume by 17.0%, primarily driven by the construction component. In fact, the National Association of Italian Constructors (ANCE) estimates that the construction sector accounted for over a third of GDP growth.

 

The European Commission forecast for Italy's GDP growth in 2022 is +4.1%, (down from the +4.3% it predicted in November). In this respect, the recent international geopolitical crisis has deeply changed the general framework, as well as the prospects for the Italian economy, triggering a further acceleration in the prices of energy and food commodities. The Russian Federation is a critical trade partner for Italy for the supply of raw materials, accounting for over 40% of Italian natural gas imports, and for over 10% of Italian refined petroleum products’ imports. Due to the uncertainty brought by the geopolitical crisis and the soaring energy prices, ISTAT estimates a negative effect of 0.7% on the Italian GDP in 2022.

In the Construction sector, for the first time in many years, and following a setback in the first year of the pandemic, investments showed some dynamism in 2021. ANCE estimate for 2021 overall construction investment suggests an impressive growth of +16.4%, in real terms, deriving from generalised increases in all sub-sectors.

Such a considerable growth is not to be regarded as a mere post-pandemic rebound since, in comparison to 2019 (a pre-pandemic year) the increase still remains significant (+9.1%) and confirms the beginning of a period of gradual recovery in the construction sector.

The 2021 growth (+16.4%) will allow for a full recovery of the pre-pandemic levels, following the -6.2% decline recorded in 2020. Nevertheless, the gap in production levels remains wide if compared to the levels experienced prior to the sector crisis: -28.8% investments in the comparison with 2007, accounting for an average loss of 60 billion Euro a year in construction investments.

The notably positive trend is especially derived from housing redevelopment, which has increased by over +20%, exceeding the expectations set out at the beginning of the year, mainly due to the exceptional effects of  tax rebates measures.

Civil engineering is also estimated to have had a significant increase (+15.0%) in confirmation of the positive results produced by the measures introduced over the last years in support of public investments. A positive contribution also derived from an early acceleration determined by the launch of the National Recovery and Resilience Plan (NRRP) limited to the ongoing investment included in the European Plan.

 

At the same time, the Italian residential real estate market has increased beyond expectations with a +34% growth in the number of housing transaction in 2021 Year-over-Year (YoY). A significant contribution to such a remarkable result derives from peripheral markets (+36.5%), as well as from regional and provincial capitals (+27.7%).

The real estate market was affected by both the willingness of the private financial system to support lending (+30.4% mortgages issued to households), and by the appearance of new housing needs in connection with the COVID-19 pandemic emergency, which has created a new household demand for wider spaces and outdoor spaces. The lockdown and the quarantine periods experienced during the pandemic transformed the way we look at our dwellings, from the households we live in the evenings and non-working days to a multifunctional space. In this sense, residences need to be designed to flexibly match the needs of all the household members, with the purpose of maximising functionality, well-being, and comfort.

In this new framework, cities become an instrument of economic policy to achieve sustainable development goals, housing policies become crucial to address the new market needs and the growing housing deprivation, and social infrastructures become a key factor.

ANCE’s outlook for 2022 envisions a mild but still enduring positive trend (+0.5%) in construction investments, driven by a growth in all sub-sectors with the exception of housing redevelopment, which will be affected by the reduction of allocated resources envisioned in the last Budget Law.

However, uncertainty clouds the outlook for 2022 and the list of potential obstacles to full recovery is long and includes the exceptional surge in prices of the main construction materials, labour shortages, and the rise of inflation over the last months. All of which become even more severe and uncertain amid the conflict rapidly unfolding in Ukraine.

Housebuilding

ANCE estimates that investment in housebuilding increased in 2021 by +21.8% YoY in real terms, due to a twofold effect: on the one hand, a notable increase of production activity (+12%) connected to the positive trend in construction permits started in 2016; on the other hand, the redevelopment of the existing housing stock, which now accounts for roughly 37.5% of total construction investment value, recorded an impressive +25%. Such an estimate, which largely exceeds the results from previous years, takes into account the positive impact on production levels derived from the demand recovery generated by the exceptional and unique measures deployed to incentivize the renovation and redevelopment of the existing housing stock. Above all the ‘‘90% Façade Bonus’ and the ‘110% Superbonus’ measures, as well as other ‘ordinary’ bonuses, introducing a generous system of tax rebates.

A fundamental role was played by the mechanisms of assignment of claim and invoice discounting, which allowed to limit the financial effort by citizens.

ANCE’s outlook for 2022 envisions a less resounding +4.5% increase in new housebuilding investment due to a -8.5% decrease in the investment for the redevelopment of the existing housing stock. The outlook takes into account the expected impact on production levels deriving from the reduction of allocated resources envisioned in the last Budget Law. For instance, the extension of the Superbonus for single-family dwellings is now conditioned upon the completion of minimum 30% of the work within June 30, with the resulting contraction, on yearly basis, of this market segment that in 2021 accounted for roughly 50% of realized investments.