Renewed construction of homes sparks optimism anew - Homeownership provides optimism
The German housing construction sector is showing signs of improvement, with the business climate index for June 2023 recording its highest level since September 2022, according to Klaus Wohlrabe, head of surveys at the Ifo Institute for Economic Research based in Munich. Despite this positive development, Mr. Wohlrabe emphasised that more action is needed from the federal government to sustain the recovery.
The German government's plans to boost housing construction, as outlined in the 2025 budget and associated infrastructure strategies, aim to inject significant public investment into the sector. Key elements include a €20 billion allocation for housing construction through 2028, with a record €3.5 billion earmarked for social housing construction. The government also plans to increase housing benefit payments by 15% in 2025 and establish a special infrastructure fund to finance state and municipal projects.
However, these measures may only partly address the deep housing shortage and construction slump affecting the sector. Residential construction accounts for 61% of Germany’s total construction investments but has experienced sharp declines, with planning permissions and approvals for new homes falling significantly. Actual completions have also fallen short of the government’s target of 400,000 new homes per year.
Mr. Wohlrabe suggests that a "housing construction turbo" is necessary to ignite a sustainable recovery in the sector. He believes that addressing financing costs could play a crucial role in supporting the recovery. The Ifo Institute for Economic Research also suggests that there is still room to address financing costs for housing.
Despite ongoing challenges, business expectations in the housing construction sector are being assessed more positively. While the current situation remains far from previous levels in the sector, companies are cautiously optimistic, according to Mr. Wohlrabe. The recovery of housing construction could face ongoing challenges due to the scale of the current shortfall, construction cost pressures, and the time lag before investments impact the market.
The combined effect of increased funding, incentives, and infrastructure modernization may foster a gradual sector recovery and support sustainable growth if fully implemented and complemented by other structural reforms. The goal of making Germany’s building stock climate-neutral by 2045 will require further investments, particularly in energy-efficient renovations, which are expected to see growth outpacing new construction.
In conclusion, the German government's ramped-up investment plans and social housing funding represent a strong push to revitalize the housing construction sector and tackle affordability and environmental goals. However, the road back to normality is still long, and a sustained and comprehensive approach will be required to ensure a sustainable recovery in the sector.
The German government's investment plans, including a €20 billion allocation for housing construction and a 15% increase in housing benefit payments, aim to stimulate the sector and tackle the housing shortage. However, addressing financing costs for housing construction, through special infrastructure funds or lower interest rates, could play a crucial role in fostering a sustainable recovery.
The increased funding, incentives, and infrastructure modernization may help revitalize the housing construction sector, but a comprehensive approach will be necessary to ensure a sustainable recovery, given the ongoing challenges of the housing market, construction cost pressures, and the time lag before investments impact the market. Vocational training programs, focusing on the housing construction sector, could also be beneficial in addressing the current construction slump and shortfall in new home completions.
