Housing construction in Europe is facing significant challenges as a result of interest-rate hikes, which aim to combat inflation but are exacerbating supply chain issues. The cost of loans and building materials has skyrocketed, leading to a decline in housing permits and construction in several countries.
Germany and France, two of the wealthiest nations in Europe, have experienced a sharp decline in new building permits. In Germany, permits dropped by over 27% in the first half of the current year, while France saw a 28% year-on-year decline in the number of permits as of July 2023. The United Kingdom is also expected to experience a decrease in home building by over 25% this year.
Sweden is currently facing its worst housing slump since the 1990s. The country’s building rates are less than a third of what is necessary to keep up with demand. This housing shortage has led to soaring home prices and an increase in black-market sublets. Construction companies in Sweden have also been hit hard, with 1,145 failing in the first 10 months of the current year, a 35% increase from 2022.
The high cost of construction supplies and a nearly tripled mortgage rates have contributed to the decline in residential building across the region. Additionally, slow bureaucratic processes and strict energy-efficiency regulations have further hindered housing construction.
In the United Kingdom, residential construction has consistently failed to meet the government’s target of 300,000 dwellings a year since it was set in 2019. Over the past five years, 45,000 residential property builders in the country have filed for bankruptcy.
While Portugal and Spain are reportedly exceeding the levels of housing starts recorded in 2015, when the aftermath of the debt crisis froze building activity, there are still severe shortages. The construction sector in these countries is facing significant challenges. Initiatives to attract investors, such as Portugal’s golden visa program, have led to a surge in home prices.
Countries like Germany and Sweden, where affordable housing was a key commitment by the ruling coalition, are struggling to meet their targets. Economists predict that Germany will be unable to add 400,000 new homes annually until 2026.
Overall, the European housing market is grappling with a housing crisis due to rising interest rates, supply chain issues, and soaring construction costs. The impact is felt across the wealthier nations as well as countries with constitutional pledges to provide affordable housing like Sweden. While there are pockets of growth in countries like Portugal and Spain, the construction sector as a whole faces significant challenges.