KfW Research: Investment backlog for child daycare centres grows to EUR 10.5 billion

• Large differences between individual municipalities
• EUR 3.2 billion was invested in 2022 – drop due to coronavirus crisis
• More daycare centres available, but numbers still insufficient

Child daycare is one of the fastest-growing municipal task areas in Germany. Municipalities, districts and communities have significantly increased the number of daycare places in recent years. Municipal investment expenditure on daycare centres rose steadily up to the year 2020 but has been falling again for the past two years. It has amounted to EUR 3.2 billion for the current year 2022 (previous year: EUR 3.4 billion), making up around 8% of municipalities’ overall investment. A new special analysis conducted by KfW Research on the basis of the nationally representative KfW Municipal Panel shows that the planned new investment will likely be insufficient to meet the growing needs. The backlog of municipal investment in child daycare reported by municipal treasurers last amounted to EUR 10.5 billion across Germany in 2021.

This total amount masks wide differences between municipalities. Thus, 12% of municipalities regard the investment backlog for child daycare centres as severe and a further 36% as significant. By contrast, 52% of municipalities, districts and communities have no or only a minor investment backlog. Expectations for the future also differ widely, as almost half of all municipalities (47%) expect the backlog of investment in child daycare to shrink while one fourth (23%) anticipate a further rise.

Reasons for these discrepancies include the different budget situations of fiscally robust and fiscally weak municipalities, for example, and diverging demographic developments between growing and shrinking regions. After all, demand for child daycare centres is strongly determined by the number of births and the inflow and outflow of young families.

Sharp rises in construction prices and planning uncertainty caused by the current crises are hampering the expansion of child daycare facilities The coronavirus pandemic has led to a shift in investment priorities, and the war in Ukraine can also cause additional burdens, for example when refugee children increasingly need to be cared for.

“In expanding child daycare, municipalities are faced with the challenge of providing adequate public services despite the current crisis environment and uncertain financial situation”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “So they need to be able to invest on a continuous basis and have sufficient and reliable funding sources such as tax revenues or transfers under the municipal fiscal equalisation system. Loans or promotional funds can fill only part of the funding gaps.”

The current analysis by KfW Research can be retrieved from
www.kfw.de/kompakt (available in German only).