Residential building activities are declining not only in Germany but throughout Europe. This is the result of an ifo analysis. But not all areas in the European construction sector are weakening.
In most European countries, significantly fewer apartments will be completed in 2025 than last year. This is the result of a data analysis by the European research and consulting network Euroconstruct, to which the Munich ifo Institute also belongs. An above-average decline of 32 percent is forecast for Germany, Europe’s largest economy.
“Whereas 295,000 completed residential units were reported in Germany for 2022, 100,000 of them in new one- and two-family buildings, by 2025 there are likely to be only around 200,000 apartments,” says the analysis. According to the ifo Institute, Sweden (minus 39 percent), Denmark (minus 33 percent) and Hungary (minus 29 percent) can also expect a particularly sharp decline in completed apartments in the years 2023 to 2025.
state funding instruments as a driver
Ifo construction expert Ludwig Dorffmeister writes, European residential construction is currently suffering from the severely gloomy framework conditions. The high inflation reduces the room for maneuver for private households. The rapid, sharp rise in interest rates often prevents financing. “The general uncertainty about the medium-term development of real estate prices and the jump in costs for construction work leads to pronounced reluctance on the part of builders and interested parties,” says Ludwig.
According to the ifo analysis, the difficult financing conditions are also affecting the maintenance and refurbishment of the European residential real estate stock – especially if government funding instruments are no longer available. Within the Euroconstruct research group, everyone agrees that the state support measures for work in the housing stock have had positive effects in almost all member countries. According to Euroconstuct, they are even regarded as the most important driver of European residential construction. However, only to a limited extent at the moment, “because modernization services have become much more expensive and rents cannot be increased at will.”
According to the data analyzed by the Ifo Institute, construction measures on the housing stock in Italy will decline particularly sharply, which is due to the expiry of a state subsidy instrument. According to the ifo Institute, the return of the so-called “Superbonus 110 percent”, an “excessive tax incentive for (energetic) existing services in Italy”, will have a delayed effect. The institute expects that the Italian existing services will decrease most significantly in 2024 – namely by around 24 billion euros. The expected drop of 3.6 percent at European level is therefore entirely due to this country-specific development.
Positive signals from Spain, Portugal, Ireland and Slovakia
However, positive signals are also coming from some European countries with regard to the construction sector: Ireland, Portugal, Spain and Slovakia. However, ifo construction expert Doffmeister only speaks of a slight recovery when looking at the absolute figures. Residential construction activity in Spain and Portugal is still at a very low level. According to the ifo expert, the sector has not really recovered since the speculative exaggeration phases of the 2000s.
Experts predict growth in civil engineering
After all, the experts foresee stabilization or even growth in the construction of non-residential real estate and civil engineering. The great need for action in the “Energy and Environment” area, together with the necessary modernization of the transport infrastructure networks and the national and European funds made available for this purpose, mean that the pace will continue to rise. In this way, according to the ifo Institute, the volume of civil engineering in 2025 should be seven percent higher than in 2022. Compared to 2019, the increase would then be 14 percent.
According to ifo experts, modernization and work on existing buildings will become increasingly important in the long term. “In the meantime, there is special state support for energy-saving measures in a number of countries, which, together with the increased energy prices and environmental transparency guidelines, create clear incentives for investments,” writes ifo expert Dorffmeister. Nevertheless, the rapid rise in interest rates, as well as stricter credit requirements and the moderate customer demand – due to the high inflation – are dampening the willingness of companies to tackle construction projects.