High interest rates and the increased need for equity in mortgage loans, caused demand for loans to fall dramatically. This is compounded by massive increases in construction costs, which far outpace core inflation. Building permits fell 13.1% in 2022. Construction completions in 2023 in the DACH region will therefore also plummet by a double-digit percentage amount (-11.5%), as a study by Interconnection Consulting shows.

Within the DACH region (Germany, Austria, Switzerland), the number of housing completions in Austria is higher in relation to the number of inhabitants than in the other two countries. While three apartments were built per 1000 inhabitants in Germany in 2022, the figure in Austria was 6.7. In Switzerland, 5.5 apartments were built per 1000 inhabitants. For this year, residential construction in Austria will also show a higher dynamic than in Switzerland and Germany, but at a lower level. In Austria, the decline will be particularly sharp at 15.5%. Whereas around 60,000 apartments were completed last year, the number will fall to around 50,000 this year. A similar reduction in construction momentum is also evident in Germany. In Switzerland, the decline is still a moderate 5.2%. The number of completed housing units per 1,000 inhabitants is down to 5.6 in Austria, 2.7 in Germany and 5.2 in Switzerland.

Construction momentum for single-family homes plummets
Overall, the DACH region is showing a trend toward multi-story residential construction (MGWB). This trend is being further fueled in particular by the sharp rise in mortgage lending rates, explains Ernst Rumpeltes, author of the study. “Especially the construction of single-family homes is collapsing sharply.” In 2018, the ratio of MGWB to single- and two-family homes was 65 to 35. In 2023, nearly 71% of all housing units will be completed in multi-story housing. This proportion should not change much in the next few years.

In Germany, the number of window units sold will fall by 5.4% this year. The reason for this is a large decline in building completions (-11.8%). With the exception of Saarland, all federal states are experiencing declines in window sales, according to a new study by Interconnection Consulting, which examines the market down to the state district level.

Overall, window sales will fall from around 15.4 million units to 14.6 million units in 2023. The strongest overall declines in window sales were recorded in the federal states of Brandenburg (-8.7%), Rhineland-Palatinate (-7.8%), as well as Schleswig-Holstein and Bremen with -7.7% each. Regions in the east fared best. In Mecklenburg-Western Pomerania and Thuringia, window sales declined by only 3.4% and 3.0% respectively. Bavaria is the German state with the highest sales, with around 3.2 million units sold, ahead of North Rhine-Westphalia with 2.8 million units sold. This is followed by Baden-Württemberg and Lower Saxony with 2.3 million and 1.5 million units sold, respectively, forecast for 2023. The top 10 cities account for about 17% of the window market in volume.

Double-Digit Declines in the Residential Sector

The decline in new construction is impacting sales in both the multi-storey residential segment and the detached and semi-detached house (EZH) segment. In the new-build EZH segment, the declines in the federal states are almost all in the double-digit range. Only Saarland is able to maintain window sales in this segment compared to 2022. Otherwise, the declines are all in the double-digit range. In the new multi-storey residential construction segment, Baden-Württemberg (-15.6%) and Berlin (-15.7%) and Bremen (-26.3%) show the strongest declines. The renovation sector must also expect slight declines for this year. Only three federal states (Bavaria, North Rhine-Westphalia, Saarland) are expected to achieve positive growth in this sector in 2023.

Non-Residential Construction Hit Slightly Less

The picture is similar in non-residential construction, with declines in both new construction (-8.3%) and renovation (-0.5%). The biggest setbacks in new construction were recorded in Schleswig-Holstein with -17.5%. Other federal states with a double-digit decline are Rhineland-Palatinate, Brandenburg and Hamburg. But the other federal states also mostly record only slightly lower declines. In the renovation sector it is Bavaria, North Rhine-Westphalia and Saarland with a positive forecast for this year.

Tops & Flops in the District Area

If you want to look for growth regions, you have to go mainly to the district level. The district of Frankenthal in the Palatinate will achieve growth of 15.6% in 2023 and thus leads the ranking ahead of Delmenhorst and Osnabrück. The negative ranking, on the other hand, is led by Wunsiedel in the Spruce Mountains with a decline of 21.5%, ahead of Altötting and Tirschenreuth.

In Germany, housing completions fell by 2.2% last year. In 2023, Interconnection Consulting forecasts a crash in housing completions of 11.8% due to the decline in building permits, rising interest rates, high inflation and declines in real wages. Only in the smaller federal states of Thuringia and Saarland will more flats be completed in 2023 than the year before.

Overall, the number of completed dwellings in 2022 was 160,455, according to Interconnection’s regional study, which analyses housing construction at the district level. In 2023, this number will drop to around 145,000. Larger cities in particular are affected by the sharp decline. Berlin, Munich and Hamburg will all lose around 15%. Düsseldorf (21.2%) and Karlsruhe (25.9%) will even have to accept declines of more than one-fifth of the housing construction volume next year. The federal states with the highest housing construction volume, such as Bavaria, North Rhine-Westphalia and Baden-Wuerttemberg, will plunge between 11% in North Rhine-Westphalia and 15% in Baden-Wuerttemberg next year. In all other federal states, too, the decline will mostly be around 10%. Only in the smaller federal states with a lower volume of housing construction, such as Thuringia and Saarland, can expect growth of 4.2% and 2.9% respectively in 2023. But there is still strong growth in isolated cases despite the economic slump in construction. In Osnabrück, an increase in housing completions of over 66% is expected. Similar growth is also forecast for the district town of Saalfeld-Rudolstadt.

Prefabricated Houses on the Rise

One- and two-family houses are even more dramatically affected by the decline than multi-storey housing. In 2022, the decline in single- and two-family house construction was already 8.2%, and in 2023 this will increase significantly to a minus of 16.4%. The decline is greatest in Thuringia at 38%. In the most important federal states in terms of volume, Bavaria (-17.6%), North Rhine-Westphalia (-16.5%) and Baden-Württemberg (-16.7%), the decline is also above the average for the nationwide decline. Multi-storey housing could still record a slight increase of 1.5% in 2022. In 2023 the decline will amount to 9.2%. This is mainly caused by the decline in construction volume in the major cities, which has already occurred before. Overall, it can be seen that the prefabricated house rate is increasing. In Baden-Württemberg, the rate will reach 50% next year. In Rhineland-Palatinate and Saarland the prefabricated house quota also reaches over 40%. In Bavaria, every third new house is a prefabricated house.

In Austria, housing completions declined by 1.7% last year. Only in Vienna, Salzburg and Burgenland were more flats completed in 2022 than the year before. For the next few years, both building permits and completions will decline overall, as a new study by Interconnection Consulting shows.

Overall, building permits in residential construction will decline by around 12% in 2023, which will also have an impact on housing completions. In 2023, a decline of 5.5% is expected in the entire federal territory. 15,669 residential units were completed in Vienna in 2022, more than in any other federal province. This is followed by Lower Austria with 10,083 and Upper Austria with 8,661 residential units. The largest increase in housing unit completions (single/two-family houses and multi-storey housing) was recorded by Salzburg with a plus of 14.3%. Vienna (+3.5%) and Lower Austria (+2.9%) also recorded increases in completions. In all other federal provinces there were declines in residential construction. In Vorarlberg the decline was 15.9%, in Styria 9.5%. Whereas Styria in particular, and especially the greater Graz area, experienced high construction activity in 2021 and the figures for 2022 are still above the long-term average, as Yuliia Hrebenkova, author of the study, explains.

Boom District in the Ski Region

Graz and the Viennese districts of Donaustadt, Favoriten and Floridsdorf are the districts with the greatest construction activity in the residential sector. In Donaustadt 4,779 residential units were completed in 2022, in Graz it was about 8% less than in 2021, but still almost 4,500 residential units. The districts with the highest growth in residential construction are Zell am See, Liesing and Oberwart (see chart). Districts with strong declines in residential construction were Leoben, Murau in Styria and Hermagor in Carinthia.

One-Family Houses Still in Fashion in Lower Austria

Overall, the multi-storey residential construction sector in Austria completes more than two thirds of all residential units. Naturally, the federal capital dominates in this segment with about 15,000 units, ahead of Styria with about 5,500 units. This is followed by Lower Austria and Upper Austria. In the segment of detached and semi-detached houses, about 5,000 housing units were completed in Lower Austria last year. Upper Austria came in second with about 300 units less. Lower Austria and Upper Austria dominate this segment with about 50% of all completions nationwide.

Housing completions reached a new peak last year – despite the ongoing pandemic. Thereby, rising urbanization drives the groth especially in urban areas at an overproportional rate. Subsequently, three districts in Vienna (Donaustadt, Favoriten, Floridsdorf) account for about 15% of the total new construction volume in Austria in terms of dwellings. Construction of flats in multi-storey buildings strongly benefits from this trend, as Interconnection shows in its recent report about residential construction which has been released on the 28th May in course of a press conference. 

In many parts of Europe the Corona-Pandemic was not the trend changer for the residential construction sector but an accelerator for a becoming apparent cool down. Building completions will drop by 9,3% in 2020 in the analyzed countries and are expected to record deep double digit negative growth (-13,3%) in 2021 as shown by the latest study from Interconnection Consulting.

Germany working off order books

Construction stops, security- and hygienic restrictions as well as a lack of work force due to closed borders are the reason for the bad mood of the construction industry and the declining investment readiness. While in countries like Germany and Austria the downturn has been herald, countries like France and the Nordics already expected a cool down of the residential construction activity despite COVID-19.  A specific of Germany is that for years the number of building completions cannot keep pace with permits. “Construction companies are recording full order books. Consequently the recession in Germany does not hit the industry as hard as there is still a lot of work to handle” explains Ernst Rumpeltes, author of the study. Accordingly the number of building permits exceeded the completions by over 50.000 dwellings the last few years. Building permits are expected to decline by 14,6% this year. The biggest drop on permits will be recorded in Italy (-36,7%) which has been strongly hit by the crisis. Similarly the situation in Poland and Hungary where residential building permits are expected to decline by  over 20%.

A case can be made for multi-storey buildings

Even though building permits are dropping in Poland, the decline of building completions is the lowest compared to the rest of Europe. On the other end of the scale Italy and Spain can be found – the two countries hit hardest by the pandemic. In contrast to detached- and semidetached houses, multi-storey buildings still benefit from rising urbanization and housing shortage in metropolises. Especially in Germany this trend can be observed where the share of completed apartments increased from 36,7% in 2008 up to 60,6% in 2019.

2020 will finally stop the longstanding upswing  of the construction industry due to the Corona-Crisis. For this year a decline of -2,7% of the residential construction activity is expected, which is only the beginning of the downward trend, as Interconnection Consulting shows in its latest report.   

Bottom will be reached by 2022 

Tightened hygiene- and safety regulations curb the residential building completions already in 2020. Furthermore, closed borders led the shortage of skilled workers on the construction sites which delay completions further. Short-time work and massive unemployment clearly have a negative effect on purchasing power and investment readiness of local households. Consequently investments in  homes are expected to decline leading to a drop of building permits in 2020 by 14,9% compared to the previous year which will obviously effect building completions within the upcoming years. While the downward trend in 2020 will be comparatively moderate, Interconnection’s forecasts for 2021 are drastic with a decline of -8,7%. Due to the delay between building permits and completions of residential buildings, completions are expected to hit the rock bottom by 2022 while in 2023 we can expect a recovery.

Urbanization further Rising 

Due to declined private incomes building completions of detached- and semidetached houses are expected to drop over proportional. While detached- and semidetached houses accounted for 29,0% of all completed dwellings in 2019 this share is expected to drop to 25,0% in 2020. Even though a slight recovery of this segment is expected, the big trend of urbanization continues regardless the corona-crisis. Consequently construction of apartments will further increase. Was the ratio between apartments and detached/semidetached houses 50:50 back in 2008 a significant shift towards apartments within the last ten years (71% to 29%).

High interest rates and the increased need for equity in mortgage loans, caused demand for loans to fall dramatically. This is compounded by massive increases in construction costs, which far outpace core inflation. Building permits fell 13.1% in 2022. Construction completions in the DACH region will therefore also plummet by a double-digit percentage amount in 2023 (-11.5%), as a study by Interconnection Consulting shows.

Within the DACH region (Germany, Austria, Switzerland), the number of housing completions in Austria is higher in relation to the number of inhabitants than in the other two countries. While three apartments were built per 1000 inhabitants in Germany in 2022, the figure in Austria was 6.7. In Switzerland, 5.5 apartments were built per 1000 inhabitants. For this year, residential construction in Austria will also show a higher dynamic than in Switzerland and Germany, but at a lower level. In Austria, the decline will be particularly sharp at 15.5%. Whereas around 60,000 homes were completed last year, the number will fall to around 50,000 this year. A similar reduction in construction momentum is also evident in Germany. In Switzerland, the decline is still a moderate 5.2%. The number of completed apartments per 1,000 inhabitants is down to 5.6 in Austria, 2.7 in Germany and 5.2 in Switzerland.

Construction momentum for single-family homes plummets

Overall, there is a trend toward multi-story residential construction (MGWB) in the DACH region. This development is being further fueled in particular by the sharp rise in mortgage lending rates, explains Ernst Rumpeltes, author of the study. “Especially the construction of single-family homes is collapsing sharply.” In 2018, the ratio of MGWB to single- and two-family homes was 65 to 35. In 2023, nearly 71% of all housing units will be completed in multi-story housing. This proportion should not change much in the next few years.