Economic Outlook: Signs of Recovery in the Construction Sector

Currently, there is a significant shortfall of over 550,000 housing units across Germany. A recent study presented at the Housing Construction Day in Berlin indicates that approximately 9.6 million individuals, which comprises 11% of the population, reside in overcrowded accommodations. This figure represents an increase of 1.1 million compared to five years ago. A coalition consisting of labor unions, tenant associations, and business organizations is urging federal and state governments to facilitate the construction of 100,000 new social housing units, with an annual funding requirement of EUR11 billion.

This housing crisis is having notable economic repercussions. According to a study by Hamburg Commercial Bank, the German construction industry ended the first quarter still within a contraction phase. However, there are signs of optimism emerging within the sector, as firms outside of residential construction are exhibiting the least pessimism seen in over three years.

Over the past year, the housing market crisis has impacted employment levels significantly. The construction sector experienced a loss of more than 10,000 jobs in 2024 alone. Given that one in every seven jobs is linked to housing construction, the chairperson of the Industrial Union of Construction, Agriculture and Environment (IG BAU) highlights the urgency of the situation.

Hope is rekindled by the coalition agreement, which aims to act as a stimulus for economic recovery. The agreements promise substantial investments in construction, presenting Germany with the opportunity for a self-sustaining economic package.

Like other sectors, the construction industry faces accusations of capitalizing on inflationary pressures by inflating prices beyond necessity. Nonetheless, an analysis from the German Savings Banks and Giro Association reveals a notable decline in profit margins and equity ratios in recent years. Factors contributing to this trend include sharply rising material and energy costs, interest rates, and recently increased wages, which have seen substantial growth in 2024, ranging from 6.7% to 13.2%. Next year, wages in Eastern Germany will be fully aligned with those in the West.

Within the construction sector, a bifurcated economic situation is anticipated to persist in 2025. While residential construction continues to lag, both private and public investments in civil engineering are poised for growth. Initiatives related to sustainable development, including enhancements to energy infrastructure, public transportation, and railway expansions by Deutsche Bahn, are driving this growth.

Major corporations such as Hochtief, Strabag, and Züblin, alongside over 80,000 mid-sized enterprises, are placing their hopes on a EUR500 billion special fund for infrastructure. The renovation of bridges and roads is expected to provide an additional boost to civil engineering, while public construction is set to focus on the expansion of childcare and educational facilities.

The critical role of the construction sector in the economy is evident through its extensive supply chain, which includes architects and various trades. There is currently a notable shortage of skilled laborers, which has inadvertently increased the percentage of women in the industry. Approximately 30% of construction engineers and supervisors are now women, and the share of employees with foreign nationality has risen from 8% in 2009 to around 25%.

It remains uncertain whether the labor shortage will hinder the anticipated construction boom. However, the union leader emphasizes that there should be no excuses and insists the new government must prioritize infrastructure development from day one.