Germany’s construction sector is on the verge of collapse, endangering the country’s overall economy, according to a report by housing giant Vonovia. The sector currently accounts for 12% of Germany’s GDP and provides employment for one million construction workers. However, the chief executive of Vonovia, Rolf Buch, warns that the industry is being sent “into the abyss.”
Despite the German government’s promise to build 400,000 flats per year, industry estimates suggest that the country actually needs around 700,000 flats annually, including accommodations for the more than one million Ukrainians seeking refuge in Germany. Last year, only 295,000 new buildings were constructed, leading to a shortage of affordable housing. Buch describes this shortage as a “societal tinderbox.”
The construction industry has been severely impacted by soaring energy prices and high building material costs due to disruptions in the supply chain. Additionally, higher interest rates have increased the cost of debt that many German builders rely on to initiate projects. As a result, numerous construction firms and property developers have gone bankrupt. In the first four months of this year, 437 building companies filed for insolvency, representing a 20% increase compared to the previous year.
Clemens Fuest, head of think-tank Ifo, criticizes the German construction market, stating that it is not functioning properly. Fuest attributes this dysfunction to burdensome red tape, such as the implementation of the “rent brake” policy and stringent environmental regulations.
According to the German Property Federation (ZIA) spring report, the housing shortage in Germany is at its highest level in two decades. The gap between supply and demand is expected to widen to 700,000 buildings by 2025. ZIA estimates that by 2024, 1.4 million people will be searching for housing and unable to find one, highlighting the urgency to address the issue.
The construction industry’s collapse not only affects housing availability but also has broader implications for the country’s economy. As an essential sector, its decline can have a negative impact on employment rates and economic growth.
To overcome these challenges, the German government needs to address the underlying issues hampering the construction industry. This includes simplifying bureaucratic procedures, reducing red tape, and creating favorable conditions for builders and developers. Additionally, an increase in investment in affordable housing projects is necessary to mitigate the current shortage and meet the growing demand.
If these measures are not taken promptly, the construction industry’s crisis will continue to worsen, ultimately affecting the overall stability and prosperity of the German economy.
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