Forecast: DIW: Construction before trend reversal – “Residential construction bottoms out”

The German Institute for Economic Research (DIW) expects a turnaround in the ailing construction industry – but is not giving the all-clear on the housing shortage. The price-adjusted construction volume in Germany is likely to grow by two percent in 2026 after five years of negative growth, predicts the DIW. A decline of just under four percent is expected for 2024, and a decline of almost one percent this year.

But even if the construction volume increases in 2026, it will still be a good seven percent below the peak value of 2021, the researchers emphasize. In housing construction it is even ten percent.

“Housing crisis remains acute”

“Residential construction appears to have bottomed out. However, the positive outlook should not obscure the fact that the last few years have created a huge gap between construction demand and construction output,” wrote study author Martin Gornig. The volume of new residential construction will probably also be around 25 percent below the 2021 level in 2026.

Weak housing construction is seen as a key reason for the lack of living space, especially in cities, and for sharply rising rents. The construction trade association ZDB expects 250,000 to 255,000 completions for 2024 – the federal government had targeted 400,000 new apartments annually.

Increased interest rates and enormous increases in construction costs have led to a slump in residential construction. “Many households shied away from building projects because of the high costs or simply could no longer afford them,” explains DIW study author Laura Pagenhardt. The weak economy is also slowing down the construction of factory and office buildings. However, infrastructure measures in civil engineering supported the construction volume.

Emergency aid for social housing required

The situation is likely to stabilize this year, says the DIW, with a view to construction orders and lower interest rates. However, due to the economic downturn, an upswing is not yet expected. Consumers are likely to continue to hold back because of concerns about their jobs and income.

However, political measures such as tax relief for new housing construction have shown initial success. Approaches to limit increases in construction costs and speed up procedures are also on the way. “As correct as these measures are, they do not help much in overcoming the acute housing crisis,” says Gornig. The DIW is therefore in favor of an immediate program for social housing construction.