Study Says End of Building Boom Coming

The construction industry has been booming for years. This trend continued last year. The reasons for this are low interest rates and favourable mortgages. According to experts, however, growth is nearing its end — and that is not due to lack of demand. Mini interest rates are driving up demand for real estate and are making the construction industry’s coffers ring. The sales figures for October 2017 published by the Federal Statistical Office confirm the trend that has been continuing for years.

However, a study by the German Institute for Economic Research (DIW) suggests that the golden times could be over, at least in the residential construction sector. According to figures from the Federal Office, turnover in the construction industry in October was 4.5 percent higher than in the same month last year. The number of employees rose by 2.1 percent within a year. For 2016, the Central Association of the German Construction Industry (Hauptverband der Deutschen Bauindustrie) had stated the number of employees at 781,000. The main construction industry, which includes the construction of houses, roads and pipelines, has been profiting from the real estate boom for some time now. In 2016, the industry’s turnover rose for the sixth year in succession. For 2017 as a whole, the industry expects the highest revenues in 20 years in Germany, at around 113 billion euros. In October there was an increase in sales in both building construction (plus 5.0 percent) and civil engineering (plus 2.7 percent).

The growth engine of the construction industry in recent years has been the construction of new houses and apartments. This is because mortgages are still comparatively cheap and “concrete-gold” is also in demand among investors.

DIW sees end of new construction boom

But according to DIW estimates, the growth in new residential construction is likely to “lose a lot of momentum”. After years with growth rates of more than ten percent in some cases, the Berlin researchers expect significantly lower growth rates in 2018 and 2019: “In residential construction, the end of the new construction boom is in sight,” the study states.

Taking into account rising prices for construction services, the DIW predicts that investment in new residential construction will only increase by around one percent in real terms in 2019. The DIW researchers cite the scarcity of building land in sought-after locations as one possible reason for the end of the boom. Moreover, the construction industry is already working at the limits of its capacity and it is becoming increasingly difficult to recruit construction experts.

All in all, however, the construction industry will “boost the German economy this year and next year,” write the DIW experts in their forecast, which is prepared annually on behalf of the Federal Ministry of Construction and the Federal Institute for Research on Building, Urban Affairs and Spatial Development: “The slowdown in new construction is likely to leave some room for more renovation and modernization of existing residential buildings.