Statement by Erich Gluch, ifo Institut für Wirtschaftsforschung
Within the scope of the main press conference, Erich Gluch from the ifo Institut für Wirtschaftsforschung gave an overview of the situation and future of the building industry and provided information on various aspects:
Residential construction
After around 250 000 completed dwellings in 2006, the figures for 2007 still registered about 210 000 completions; in 2008 the figure will probably be only a round 195 000. So far the present statistical data show no signs of an increase in demand.
On the other hand comprehensive building demolitions have taken place; between 2002 and 2007 more than 200 000 dwellings alone in Eastern Germany. According to present plans the regression programme is to be extended until 2016, whereby a further 300 000 dwellings would be taken off the market. However, the positive effects on new residential construction would probably be still quite small in 2009 and 2010.
Over a period of many years the demographic development was a factor which had a strong dampening influence on the demand for housing. Between 1995 and 2005 the number of 25 to 35-year-olds, from whom in general the most comprehensive demand impulses originate, dropped by over 4 million to only just under 10 million. By 2010 the population figure in this age group will only increase slightly, so that noticeable positive effects cannot yet be expected. On the other hand at least the strongly dampening effect will have come to an end after a long period.
Meanwhile the signs are increasing that in many cases property is being discovered again as a “safe” investment.
In 2009 the declining residential construction activities will reach their low point with around 185 000 completed dwellings; in 2010 the figure of 200 000 completed dwellings will probably be missed only by a narrow margin.
According to different estimates, already around 70% of residential construction investments at present go into the renewal of old buildings; only around 30% are allocated to the construction of new residential buildings. Here sustainable measures for the reduction of energy consumption are at the top of the list. The Federal Government will make available further funds to improve the energy efficiency of buildings, above all by increasing the financial means for the CO2 building refurbishment programme. The already high level of the measures on existing buildings will therefore probably be maintained in 2009 and 2010 or even increased further. In particular the comprehensive measures on existing building stock will lead to the fact that the building investments in residential construction will even increase slightly (+ 0.3%) in this year. Despite the increase of state grants, above all for energy renewal of existing residential buildings, a decrease by 1% will not be prevented in 2009. Only in 2010 – also supported by a revival in the new building sector – will there probably be an increase in investment activity in the residential construction sector.
In the industrial building sector, the business climate has clouded over significantly in the last quarters. The orders received by freelance architects from industrial owners have really slumped in the 3rd quarter 2008. Merely the orders received by building contractors still show slightly higher values than in the previous year.
Industrial building investments
After three years with a strong increase in industrial building investments (+ 5% p.a. on average) there are probably hardly any companies with an urgent need for building measures. In most companies it is likely that the next few years will be used for consolidation. In some cases, firmly planned investment projects can even be postponed. In consolidation phases companies generally take more care again of their existing building stock. Also the increase of the energy efficiency of buildings will continue to have high priority. The decline in new building activity will therefore – at least in part – be compensated by more comprehensive measures on existing buildings. Nevertheless the building investments in industrial construction, after rising by 7 to 8% in 2008, will shrink significantly this year (- 5%).There will probably not be an increase in 2010 either (- 2%).
Public building investments
The public building investments have been increasing since 2006. Even the further development is viewed quite positively by the Arbeitskreis Steuerschätzung (Working Group for Tax Estimation). During their meeting in May 2008 the experts were still assuming an increase in communal tax revenues of around 5% on average in the years 2010 to 2012. These values are not likely to be reached. On the other hand a noticeable drop is not to be expected either. The local communities, by far the greatest investors in buildings and structures, will therefore probably be put in the position of being able to tackle at least part of the deferred building measures.
Extensive funds are planned to stimulate the public building demand. With 1 000 million € in particular additional traffic investments are to be carried out, whereby particularly structurally weak communities are to be supported with extremely low interest KfW funds. Furthermore especially urgent projects in the traffic sector are to be brought forward. Consequently public building will be able to show substantial growth rates both in 2009 and 2010 (+ 5% and + 6% respectively).
In summary it can be stated that the building demand will still show a fairly positive development in this year (+ 3%). In 2009 above all the industrial building investments will decline strongly, while the public building measures will benefit from numerous programmes to support the economy. The total building investments will probably shrink by around 1½%. A growth rate of just under 1% is not to be expected again before 2010.
European building industry
In 2008 – after 14 years of uninterrupted growth – the European building industry will decline by around 2.5%; in 2009 the downward trend will even intensify at -4.5%. Here the decline will be particularly strong in the two countries which had previously shown the greatest boom: Ireland (- 21% and - 16%) and Spain (- 14% and - 16%). The drops in residential construction are almost dramatic: In Ireland and Spain the investment volume in this partial sector alone will be halved in these two years. On the other hand, in Europe altogether the decline in 2008 and 2009 will amount to “only” around 7% in each case.
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