Skills shortage is increasingly hampering residential construction

• KfW Research: 300,000 new homes are to be completed in Germany in 2018
• Number is still insufficient to meet demand
• Building crafts skills in particular are lacking

Germany’s housing construction boom continues. According to KfW Research’s current analysis of the German real estate market, the number of new housing units to be completed this year should rise to 300,000, after 285,000 in 2017. That is the highest volume since the turn of the millennium. But the number of newly constructed homes will remain far below demand, which is being driven by the ongoing trend towards urbanisation and by migration. To avert housing shortages, 350,000 to 400,000 units would have to be completed each year by 2020.

The insufficient number of newly completed homes is not due to a shortage of people willing to build, nor even to excessively slow municipal approval processes. On the contrary: In view of the favourable financing environment, the number of building approvals is continuing to rise and is likely to reach the 350,000 mark by the end of the year. Rather, the main problem is implementing approved building projects.

“In the past ten years, the gap between building approvals and completions in the residential construction sector has widened steadily. At present, 653,000 approved residential construction projects are awaiting implementation in Germany. I expect this figure to rise further up to the end of the year”, said Dr Jörg Zeuner, Chief Economist of KfW Group.

The high backlog levels are due to a number of reasons. Rented housing in particular often takes more than two to three years to be completed. It is also safe to assume that some builders delay construction after approval because they expect rent levels to rise and real estate prices or construction costs to fall in the future. But capacity shortages in the construction industry also play a key role – increasingly caused by a lack of skilled workers. The building and civil engineering sector (e.g. construction firms) has so far been able to rely on an influx of foreign skilled workers to meet construction demand. In this economic sector, one in six workers today comes from outside Germany. But skills shortages remain in the finishing trades. “The supply of skilled workers in the plumbing, sanitation, heating and air conditioning trades has dropped further in the past year, according to the high number and long duration of vacancies reported by the Federal Employment Office. Master craftspeople in particular are hard to find, but increasingly other skilled construction workers as well”, said Dr Jörg Zeuner. “The skills shortage is gradually becoming the greatest risk to the growth of construction activity in Germany.”

The current analysis entitled “Skills shortages in the construction sector is increasingly hampering residential construction” can be retrieved from: www.kfw.de/fokus