Downturn in once-thriving residential construction industry poses challenge for EU’s largest economy
Wolfgang Schubert-Raab recalls when the boom times were so good that his company could not build homes quickly enough.
“Back in 2021, before we’d even poured the first cubic metre of concrete, we’d already had offers on more than half the complex,” said the managing director of the Raab construction group. Two years on, the market for single-family dwellings is in what Schubert-Raab describes as a state of “completely collapse”.
Across Germany, homebuilders are facing such a sharp reversal in their fortunes that the downturn in residential construction is threatening to have broader repercussions across Europe’s largest economy.
Many have declared themselves insolvent, damping chancellor Olaf Scholz’s target of building 400,000 new homes a year to tackle a housing affordability crisis in several of the country’s largest cities.
Last week, the federal government combined with state legislatures to intervene, unveiling a package of measures aimed at speeding up housebuilding by cutting red tape. Industry representatives view the response as a step in the right direction, but are concerned the measures are not strong enough and the rollout will be far too slow.
Tim-Oliver Müller, managing director of the German Construction Federation (HDB), said: “Based on past experience, we don’t believe that it will be implemented quickly. The federal structures are far too complex for that.”
After a decade-long boom fuelled by strong demand, cheap credit and low costs for raw materials, German builders are now facing what Gereon Frauenrath, managing director of construction company Frauenrath Group, describes as a “perfect storm”.
Raw materials are now over 40 per cent more expensive than before the pandemic — the biggest surge in Europe. The credit-intensive sector must also grapple with 10 straight interest rate rises by the European Central Bank. While the country still has a shortfall of suitable homes, especially in the major cities, the higher cost of borrowing is pricing many prospective buyers out.
The result has been a devastating loss of confidence that has led to the country’s residential property market being among the worst performers in Europe.
House prices were down 10 per cent year on year in the second quarter, while the number of building permits issued has sunk far more quickly here than in the region as a whole. In October, 22.2 per cent of companies reported cancelled projects — the most since the Ifo think-tank began recording the figure in 1991.
“It’s getting worse all the time,” said Klaus Wohlrabe, head of surveys at Ifo. “In residential construction, new business remains very low and companies’ order backlogs are diminishing.”
You see, the real problem is the economic damage done to the poor building companies. Not the people who can’t afford their own home anyone or a home in general!
Because it’s all about the economy. It doesn’t matter of the people in the country get well. It’s just about economic numbers…
Maybe it’s unfair to write this under this post specifically but housing prices as well as rental costs are a real problem here.
Instead of trying to make everyone’s life better it’s all just about the big number at the end of the equation.
70m² apartment here cost €400.000 in 2020, now it costs €500.000 at least. Interest rate went from -0,5% to 4,5%.
In 2020 I take out a loan for 20 years at 1% for the €400.000 apartment, including all the costs let’s say at least €1750 a month.
In 2023 I take out a loan for 20 years at 4,5% for the €500.000 apartment, including all the costs let’s say about €3500 a month.
This isn’t rocket science, the costs just DOUBLED.
DOUBLED. In three years. The apartment needs to be priced at €250.000 so that my monthly payment is still at €1750 at 4,5% interest.
MY INCOME HAS NOT DOUBLED.
I CAN NOT AFFORD THE NEW PRICES.
Prices were too high, market was too hot and now it gets adjusted.
Thats only natural.
The reflexive reaction to spell doom at every downturn gets tiring.
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Downturn in once-thriving residential construction industry poses challenge for EU’s largest economy
Wolfgang Schubert-Raab recalls when the boom times were so good that his company could not build homes quickly enough.
“Back in 2021, before we’d even poured the first cubic metre of concrete, we’d already had offers on more than half the complex,” said the managing director of the Raab construction group. Two years on, the market for single-family dwellings is in what Schubert-Raab describes as a state of “completely collapse”.
Across Germany, homebuilders are facing such a sharp reversal in their fortunes that the downturn in residential construction is threatening to have broader repercussions across Europe’s largest economy.
Many have declared themselves insolvent, damping chancellor Olaf Scholz’s target of building 400,000 new homes a year to tackle a housing affordability crisis in several of the country’s largest cities.
Last week, the federal government combined with state legislatures to intervene, unveiling a package of measures aimed at speeding up housebuilding by cutting red tape. Industry representatives view the response as a step in the right direction, but are concerned the measures are not strong enough and the rollout will be far too slow.
Tim-Oliver Müller, managing director of the German Construction Federation (HDB), said: “Based on past experience, we don’t believe that it will be implemented quickly. The federal structures are far too complex for that.”
After a decade-long boom fuelled by strong demand, cheap credit and low costs for raw materials, German builders are now facing what Gereon Frauenrath, managing director of construction company Frauenrath Group, describes as a “perfect storm”.
Raw materials are now over 40 per cent more expensive than before the pandemic — the biggest surge in Europe. The credit-intensive sector must also grapple with 10 straight interest rate rises by the European Central Bank. While the country still has a shortfall of suitable homes, especially in the major cities, the higher cost of borrowing is pricing many prospective buyers out.
The result has been a devastating loss of confidence that has led to the country’s residential property market being among the worst performers in Europe.
House prices were down 10 per cent year on year in the second quarter, while the number of building permits issued has sunk far more quickly here than in the region as a whole. In October, 22.2 per cent of companies reported cancelled projects — the most since the Ifo think-tank began recording the figure in 1991.
“It’s getting worse all the time,” said Klaus Wohlrabe, head of surveys at Ifo. “In residential construction, new business remains very low and companies’ order backlogs are diminishing.”
You see, the real problem is the economic damage done to the poor building companies. Not the people who can’t afford their own home anyone or a home in general!
Because it’s all about the economy. It doesn’t matter of the people in the country get well. It’s just about economic numbers…
Maybe it’s unfair to write this under this post specifically but housing prices as well as rental costs are a real problem here.
Instead of trying to make everyone’s life better it’s all just about the big number at the end of the equation.
70m² apartment here cost €400.000 in 2020, now it costs €500.000 at least. Interest rate went from -0,5% to 4,5%.
In 2020 I take out a loan for 20 years at 1% for the €400.000 apartment, including all the costs let’s say at least €1750 a month.
In 2023 I take out a loan for 20 years at 4,5% for the €500.000 apartment, including all the costs let’s say about €3500 a month.
This isn’t rocket science, the costs just DOUBLED.
DOUBLED. In three years. The apartment needs to be priced at €250.000 so that my monthly payment is still at €1750 at 4,5% interest.
MY INCOME HAS NOT DOUBLED.
I CAN NOT AFFORD THE NEW PRICES.
Prices were too high, market was too hot and now it gets adjusted.
Thats only natural.
The reflexive reaction to spell doom at every downturn gets tiring.