Construction Industry: Infrastructure Cash Injection - Boon or Bane for Housing Sector?
Infrastructure billions potentially causing construction delays in housing projects?
In the current real estate scene, discussions revolve around the surge in housing and apartment prices following a brief lull. This resurgence is attributed to the acute housing shortage and the dearth of new building projects. With property rentals in a tight squeeze, many tenants aspire to own their homes. However, the issue lies in the lack of available houses and apartments. Rising construction and financing costs have further stifled the construction of new buildings.
The big question at hand is how the massive infrastructure billions earmarked by the black-red government will impact the market: Will it stimulate the construction of new apartments or impede it, causing the already inflated construction costs to skyrocket further due to an increased demand for labor and materials?
Early Moves
Real estate economist Michael Voigtlaender from the employer-friendly Institute of the German Economy (IW) explains, "We don't yet know exactly how the special fund will be used, but everyone in the construction industry will certainly try to grab a piece of the pie." Daniel Ritter from the real estate agency von Poll Immobilien notes, "Many new orders will come in, which will inevitably lead to price increases."
Even though the infrastructure funds seem unlikely to directly benefit housing construction, there's a risk that capacities currently used in housing construction could be diverted. Voigtlaender states, "There's a risk that capacity will be drawn from housing construction." Construction companies currently have a utilization rate of around 70%, significantly lower compared to the utilization rates during the boom years before 2021.
Economic Perspective
Economist Voigtlaender warns, "It's the government's responsibility to ensure that we see more momentum in housing construction to prevent workers from moving to civil engineering projects." He suggests the government could support self-users and private builders more strongly by increasing state subsidies, expanding tax write-offs, lowering real estate transfer tax, or providing subordinated loans. This would encourage more self-users to start building or buying and renovating homes now, rather than delaying purchases for years.
Alternatively, requirements for energy renovators could be relaxed to incentivize long-term property owners to invest in energy improvements, keeping construction workers employed and preventing them from shifting to road or bridge construction in the near future.
Future Outlook
While the funding landscape for energy renovations remains unclear, expectations are that existing properties will drive the market. Stefan Münter, CEO of financing platform Europace, anticipates more activity in the existing market while private new construction sees a slight increase, despite the rise in construction costs. Energy renovation is expected to be a significant focus in the future, unaffected by the infrastructure package.
In essence, while the infrastructure investments have the potential to boost economic conditions and make areas more attractive for housing developments, their ultimate impact on housing construction depends on the strategic allocation and management of these funds, as well as broader economic policies.
Sources:- capital.de- ntv.de
- The community policy and employment policy are crucial to ensuring that construction workers are not diverted from housing construction to civil engineering projects, as suggested by economist Michael Voigtlaender.
- As many tenants aspire to own their homes due to the current tight rental market and high housing prices, employment policies, such as subsidies and tax write-offs for self-users and private builders, could play a significant role in stimulating housing construction and fulfilling the growing demand for new apartments.
