Your Path to Owning Real Estate

It Takes Longer and Longer to Build

06.

July 2018

Although the housing demand in Germany is enormous and although the Federal Government announced a “housing offensive,” new build construction is barely gaining momentum. Germany is a far cry from the target mark of 375,000 new flats per year—with only 285,000 flats completed in 2017 (source: destatis.de). One of the reasons to explain the phenomenon is that the process of housing construction is getting more long-winded. As the GdW Federal Association of German Housing and Real Estate Companies revealed recently, the construction of multi-family dwellings with affordable rental flats now takes an average of five years from the planning stage to completion. As recently as 2015, the gross construction period was 29 months. This means that the average time to completion in rental housing construction has more than doubled (source: welt.de).

The GdW association lays the blame squarely on bad politics. Standards and guidelines in housing construction are continuously tightening and proliferating, making construction more difficult, pricier and more time consuming. The situation is exacerbated by understaffed building authorities that slow the approval process down. On top of that, the so-called NIMBY attitude (“not in my backyard”) is increasingly causing delays to building projects and cost hikes because local residents seek to prevent developments. Not least, the building industry itself is plagued by a serious capacity bottleneck that keeps many planned residential construction projects from getting off the ground.

Momentum on New-Build Construction Noticeably Slowing

The GdW Association has therefore committed itself to the cause of making building regulations more pragmatic and of simplifying serialised and standardised construction. The latter approach should be promoted, or so the association argues and calls for a nationwide licensing arrangement. It expects standardised construction to shorten construction periods and to lower the costs. The GdW has moreover criticised the awarding of municipal land to the highest bidder and is calling for the elimination of obstacles that hamper infill densification, especially in urban areas (source: gdw.de). But infill densification is precisely what is needed because the number of permits for construction measures in existing buildings dropped by nearly 20 percent year on year in 2017 (source: destatis.de).

Another indication for the urgent need for reform if the construction targets are to be achieved is the deterioration of the investment climate in new-build construction in the course of last year. The member companies of the GdW Federal Association of German Housing and Real Estate Companies had originally planned to step up their investments in housing construction by 23.4 percent in 2017, but the actual increase amounted to 11.9 percent only. This implies a significant year-on-year decline because investments had increased by over 35 percent the previous year. GdW labelled the visibly slowing momentum of new-build investments an “alarm signal.”

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