Swansong for the construction of 1+2 family homes in Germanyby Ludwig Dorffmeister ifo Institute Leibniz Institute for Economic Research at the University of Munich
In Germany, the construction of 1+2 family homes (owner-occupied homes) has been at a very low level for 10 years now. In view of the low interest rates and positive economic environment, this may seem surprising. But a shortage of land in many areas and a sharp increase in building costs has made the construction of new builds considerably more expensive. In addition, state subsidies have been cut significantly in recent years; and progressive demographic ageing is already creating major problems for the construction of owner-occupied homes. Looking ahead, the owner-occupier pool is expected to shrink further, while more 'secondhand' buildings come onto the market due to the rising volume of bequests. Completion figures for dwellings in 1+2 family buildings can be expected to fall below the 100,000 unit benchmark in the long term as a result.
Current level of completions only just over 100,000 per year
The number of newly-built owner-occupied homes has dropped considerably in Germany since the turn of the millennium. In 1999 nearly 240,000 dwellings were completed in newly-built 1+2 family buildings, with this figure falling to just 85,000 dwellings in 2010 (see chart 1). The upturn in the new residential construction sector after the financial and economic crisis as a result of low interest rates, pronounced immigration and internal migration, as well as the rediscovery of real estate by investors, was far weaker in the owner-occupied segment than in the multi-family segment. A lateral move in the market emerged early in 1+2 family homes i.e. completion figures have been fluctuating between 100,000 and 110,000 dwellings for some years. The increase to around 115,000 units forecast for 2017 is related to a special effect following the introduction of stricter energy regulations. It seems very likely, however, that this growth generated by a pull-forward effect in completion figures will only be temporary. The fact that a potential, marked increase in the construction costs of owner-occupied homes has only moderately stimulated new construction permits shows the modest upwards potential of this sub-segment.