On March 22, the Swiss National Bank lowered interest rates to 1.5%. “Other countries will likely follow. This will be helpful since interest rates of around 4% are a major problem especially for the single-family home segment,” Martin Langen of B + L Marktdaten of Bonn, analyzed on the same day at the VGQ Congress in Baden, Zurich. Given the now lower interest rates, Langen thinks that a turnaround in the construction industry is possible.
Demand for housing space still growing
In 2023, the downward trend in construction continued at a considerable pace. In Germany, the number of building permits for housing units decreased by 91,500. In France, a decrease of 116,000 permits was recorded.
Lack of affordable housing
In the case of Germany, there is a serious lack of social housing space. Despite the balanced budget provision, the German government has reserved several billions of euros a year for social housing. “Residential construction has to change. Instead of expensive private property with prices of over €5,000 per square meter, the industry has to focus more on affordable rented housing space whose construction costs less than €3,500 per square meter.”
By 2027, there will be a shortage of 640,000 housing units in Germany – and the situation will continue to worsen © B+L Marktdaten
Nokera still with few projects
In order to be able to close the gap between the housing space required due to demographic developments and the actual construction of residential buildings in the coming years, the German government is promoting primarily serial construction. Nokera, the largest startup in this segment, does have the capacity but it has not yet received the go-ahead for the new construction. While the federal government supports a fast expansion of capacities, it is the local building authorities who often put obstacles in the way of planned projects. In most cases in Europe, there are still no designated areas for new residential quarters. “Where in the DACH region can you find the land for building ten identical houses?”, Langen wondered, adding that modular construction needs smooth project workflows in order to be economical. “In Great Britain, prefabricated house factories failed due to delays on construction sites and for some companies, the technical challenges were sometimes too big to master in practice.”
Non-residential construction to take off first
The shift towards an increase in prefab construction will happen in non-residential construction first, where the market is most dynamic. “Capacities are building up in serial residential construction, but demand will probably be too weak until 2025,” Langen said.
Lower interest rates for a soft landing
The central banks’ interest rate hikes were aimed at slowing down European economies. “The economy is currently being slowed down in order to mitigate the price increases of recent years. As a result, we have two years (2023 and 2024) of quasi-stagnation before the economy will pick up again.” According to the ifo Institute, consumption will increase already in 2024 “because the increases in wages and salaries this year and especially in 2025 will be above inflation”. The ECB expects an inflation rate of 2.3% for Europe as a whole, while wages and salaries are expected to rise by 4.2%. “Such real-term increases are very rare but they will happen this year and especially in 2025,” Langen predicts. This could also have a positive effect on private renovations.
Run on renovated buildings
This year, demand for housing loans has seen an increase like rarely before. According to the platform Interhyp, 90% of those loans were taken out for second-hand properties, and only 10% for new ones. “Prices for rental houses in major German cities have gone down by 30%. They won’t get much cheaper than that. One by one, these older houses will have to be renovated at some point. Renovations can compensate for some of the losses in value and achieve a jump in value.”
Ukrainians are here to stay
In Baden, Langen also included the war in Ukraine in his analysis. “Especially in Germany, the war in Ukraine is a strong driver. 1.5 million Ukrainian refugees currently live there – and many of them will probably stay forever. If Ukraine loses the war, there will probably be significantly more. Either way, demand for housing space will grow strongly in Germany.”
VGQ CONGRESS 2024
Full house in Baden
VGQ President Michael Schär welcomed around 400 visitors at the 22nd VGQ Timber Construction Forum 24 on March 22. The event which was held in Baden near Zurich was sold out.
The Congress is a meeting point for the Swiss sawmill industry and the timber construction sector, and this is also reflected in the professional background of the participants.
The abbreviation VGQ stands for Verband Gebäudequalität Schweiz. It is a knowledge and networking platform dedicated to increasing quality assurance standards in the Swiss timber construction sector. The VGQ’s managing director Uwe Germerott moderated the Congress on the first morning.
