The German Construction Sector Sees a Temporary Boost: A Closer Look at Residential Construction
Residential construction sector witnesses growth: increased contract wins by company - Increased construction demand: higher housing orders recorded
The German construction industry is displaying a glimmer of hope, with a temporary revenue surge reported in January. According to the Federal Statistical Office, the price-adjusted order intake in construction increased by 5.2% compared to the previous month, and over ten percent compared to the same month last year.
The increases can be attributed to an encouraging rise in both high-rise construction (which heavily depends on residential construction) and civil engineering sectors. The improved business landscape led to a slight increase in employment, benefiting the industry's over 900,000 workers. Although welcome, experts warn that this might not be a long-term trend reversal.
The favorable weather conditions at the start of the year and increased residential construction projects played significant roles in the sector’s rejuvenation. However, the story within the residential construction sector presents a more complex picture.
According to the German Construction Industry Association (HDB), the 35% increase in residential construction orders in January was a notable spike, but whether it signifies a sustained trend or a short-lived phase remains uncertain. Despite this increase, the residential construction sector is still recovering from a low phase. Commercial and private investors continue to be uncertain due to high construction costs, adding another layer to the sector's challenges.
In 2024, the construction industry recorded price-adjusted decreases in order intake and revenue, and the Central Association of the German Construction Industry (ZDB) predicts further price-adjusted revenue losses in 2025. Notably, the German residential construction sector faces several realities that ultimately impact the broader construction industry:
- Declining Building Permits and Completions: Building permits have been decreasing significantly, leading to a decline in construction completions. The sector's recovery is expected to be slow, with completions estimated to reach 160,000 units by 2026 – far below the government’s target of 400,000 units per year.
- Rising Construction Costs and Insolvencies: High construction costs, rising interest rates, and increasing insolvencies continue to pose hurdles to the residential construction sector's recovery. Insolvencies have risen by 17.5% between January and October 2024.
- Persistent Demand-Supply Imbalance: The demand for housing remains high, especially in metropolitan areas. However, the supply remains insufficient, leading to increased rents and pressure on the housing market.
- Stabilizing Purchase Prices: Despite the challenges, purchase prices for residential properties have stabilized in recent months, making homeownership slightly more attractive.
Overall, while the German construction sector shows a temporary boost, the residential construction sector continues to face significant challenges. The recovery is expected to be gradual, with infrastructure investments potentially offering a future boost if approved by the government.
- The German Construction Industry Association (HDB) anticipates further price-adjusted revenue losses in residential construction in 2025.
- To address the challenges in the residential construction sector, vocational training programs could be implemented to reduce the labor shortage and lower construction costs.
- By 2025, it is crucial for the community policy to focus on affordable housing solutions, infrastructure investments, and vocational training programs in Wiesbaden to stimulate the residential construction sector and meet the target of 400,000 units per year.
