Struggling in the Construction Industry: The 60 Billion Blow and Its Impact on Housing Policy
The current state of the construction industry is far from rosy, and the recent ruling from the Federal Constitutional Court on the federal climate and transformation fund has only compounded the issues. Construction ministers from the federal states are currently convening in Baden-Baden to discuss solutions, but the industry is already grappling with a weak residential construction market, and the chances of reoccupancy are dwindling.
Tim Oliver Müller, Managing Director of the Federation of the German Construction Industry, shared his frustration with dpa, stating, "It's doubly bitter: the residential construction market is already at rock bottom, and there's no impact left. However, the chance of reoccupancy is getting smaller and smaller." He pointed out that the German government had not adequately addressed the crisis.
The Federal Constitutional Court's decision in Karlsruhe had declared the reallocation of €60 billion to the Climate and Transformation Fund (KTF) illegal. This ruling has added to the uncertainty surrounding various housing policies and initiatives, such as subsidizing the purchase and renovation of old homes by young families.
The situation in the construction industry is challenging regardless of the Karlsruhe decision's impact. Building permits are plummeting, incoming orders are decreasing, and cancellations of orders already placed are on the rise. The German government's ambition to build 400,000 new homes annually is becoming increasingly unattainable, with estimates suggesting it could dip below 100,000 by 2025.
Nicole Razavi, chairwoman of the Conference of Building Ministers, head of department in Baden-Württemberg, warned of devastating consequences if further cuts are necessary. She and Müller fear that discussions around renovating sports facilities, adapting urban spaces to climate change, and offering financial aid for municipal heat planning will be influenced by uncertain funding sources.
The Federal Building Ministry has yet to specify the full implications of the ruling, but it has assured that home ownership financing for families (WEF) and climate-friendly new builds (KFN) are secured at least for this year, with nearly €2 billion earmarked for these initiatives in the current year.
A shadow looms over future spending, with €1.1 billion budgeted for WEF and KFN next year. Potential victims of uncertain funding include sports facility renovation, climate-adapted urban planning, and financial aid for municipal heat planning.
The Federal Chamber of Architects has called for a focus on climate-friendly measures within housing policy, advocating for refurbishing inefficient buildings, supporting climate adaptation in municipalities, and facilitating the heating transition in boiler rooms. These actions, according to the Federation, could reduce CO2 emissions more effectively than new residential construction.
Indirect implications of the ruling for housing policy:
- Reduced budget constraints: The Federal Constitutional Court’s ruling has led to a loss of €60 billion in credit authorizations for the federal budget and special funds, including the KTF. These reduced funds could limit the government's ability to invest in various sectors, including housing and residential construction.
- Prioritization of spending: The ruling underscores the need for strict adherence to the debt brake rules, potentially forcing the government to prioritize essential services and infrastructure projects. This might mean that investments in housing and residential construction could be scaled back or delayed if they are not deemed essential under the new fiscal constraints.
- Exploration of alternative funding mechanisms: The government may need to explore alternative funding mechanisms or seek additional budget allocations to support critical infrastructure projects, such as those related to housing. However, achieving this could be challenging given the current fiscal constraints and the need to adhere to debt brake rules.
- Broader societal and economic impact: Reduced government spending on various sectors, including agriculture and development projects, has already led to protests and adjustments in budget allocations. This trend could signal broader fiscal restraint, potentially impacting investments in housing and residential construction if they are not deemed critical under the new fiscal framework.
In summary, the Federal Constitutional Court's ruling has far-reaching implications for residential construction and housing policy, although these impacts may not be immediate or straightforward. While the ruling does not address housing policy directly, it establishes an environment of fiscal discipline and limited government spending which could affect housing investments.
