Construction Industry Warns of Looming Job Cuts and Insolvencies
The construction industry is sounding the alarm, urging politicians to take action in the face of a looming crisis in residential construction. According to Wolfgang Schubert-Raab, President of the Central Association of the German Construction Industry, the current slump in residential construction could result in a wave of insolvencies and the loss ofaround 100,000 jobs next year.
As reported by the "Augsburger Allgemeine", around 77,000 fewer apartments were approved by September compared to the same period last year, with cancellations expected to follow. With a substantial budget shortfall, investors are now seeking clarity on the future framework conditions, as the industry fears that reduced subsidies and worsened conditions could lead to a prolonged collapse in residential construction.
Robert Feiger, Chairman of IG Bau, echoed these concerns, stating that although there remains some outstanding orders, the industry is bracing for an eventual depletion of current backlogs. In an attempt to steer the industry away from disaster, Feiger proposed the creation of a "special fund" amounting to 50 billion euros for social housing construction, and an additional 22 billion euros to construct affordable housing for average-income homebuyers.
Christian Bernreiter, Bavarian Construction Minister, expressed a similar sentiment, emphasizing the necessity of jointly preventing the construction and housing sector from collapse.
Potential Policy Measures
To address the challenges in residential construction and maintain industry stability, various policy measures can be considered:
- Streamlining Regulations and Reducing Red Tape: The German Property Federation (ZIA) suggests tightening regulations and fast-tracking the approval process for building permits, thereby reducing time and expenses associated with obtaining necessary permissions.
- Increasing Funding for Social and Affordable Housing: Direct funding from the government or tax incentives for developers could spur social and affordable housing construction, thereby addressing the high demand and supporting the construction industry.
- Addressing High Construction Costs: Subsidies across various components of construction costs (materials, labor, etc.) might help alleviate some of the financial burden on developers.
- Interest Rate Support: Monetary authority support in the form of lower interest rates could help encourage investment in the residential construction sector.
- Encouraging Private Investment: Tax breaks or other financial incentives could entice private investors to invest in residential construction projects.
- Enhancing Public-Private Partnerships (PPPs): Joint funding models where the government and private investors share costs and risks could help support large-scale residential construction projects.
- Training and Skills Development: Investment in the training of construction workers, particularly those adapting to new technologies and market conditions, could help alleviate potential job losses.
- Order Backlog Support: Temporary measures, such as subsidizing cash flow or offering low-interest loans, could help maintain small- to medium-sized enterprises (SMEs) and producers in the residential construction sector until demand increases.
Enrichment Insights
The financial resources proposed for social and affordable housing construction could encompass:
- Direct Government Subsidies
- Tax Incentives for Developers
- Public-Private Partnerships (PPPs)
- Low-Interest Loans
Sources
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