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Expensive house construction:
The surge in prices for building materials and rising interest rates are putting house builders in dire straits
Photo: Julian Stratenschulte / dpa
Building is more expensive than it has been for a long time. The costs have increased by around 30 percent over the past decade, as shown by the construction price index for residential buildings from the Federal Statistical Office. Since the beginning of the year, the price increase has accelerated again. Michael Fritsche from the Association of Private Builders deals with the topic on a daily basis.
manager magazin:
Hardly anyone can currently fulfill their dream of owning their own home.
Mr. Fritsche, what makes building so expensive?
Michael Fritsche:
The lack of KfW funding, rising interest rates and higher prices for building materials are driving up costs.
There are three factors that are currently making construction so expensive and, taken together, have a serious impact.
Why is there no more KfW funding for a new building?
The new federal government has probably collected the funding for cost reasons.
At least for the time being: From mid-April it will be reissued in a slimmed-down version.
Then only the so-called KfW efficiency houses 40 – i.e. very energy-efficient buildings – will receive the subsidy.
The average interest rate for a ten-year building loan has risen from just under 1.0 percent in December to currently 2.1 percent. One would expect real estate prices to stagnate or even fall as interest rates rise. Why don't they?
This is related to supply and demand.
The market is saturated with affordable living space, and people are increasingly striving to own their own home.
In addition, there is certainly the freely available money of the generation of heirs and the question of how to deal with savings sensibly.
With the beginning of the negative interest phase and its transfer to small savers, a further impetus has come into the property hype.
20 years ago the interest rate was even 6 percent. Why is it now perceived as too high?
Man forgets!
What happened in the short term seems more relevant than a longer-term retrospective.
That is why the costs of a solar system are often only relevant at the beginning in retrospect, while the energy savings generated become more important as the operating time increases.
Regardless of how long it may take until the investment has paid off.
For builders, the comparison with one or two previous years counts more than what was 20 years ago.
To what extent did the Ukraine war drive up construction costs?
There were already rising construction costs.
The pandemic and supply chain problems had taken care of that – the war is now exacerbating the problem.
Some building materials are now being repriced almost every day, because prices rise with scarcity.
However, the Ukraine war has not yet had any serious effects.
Still.
Which building materials are currently in short supply?
Mainly steel and insulating material.
The severe shortage of wood in 2021 has already subsided somewhat because demand from abroad has fallen slightly.
Many people wanting to build complain that they can hardly find craftsmen. What is the current order situation?
All the craft companies I know have full order books.
Inquiries are often already being scheduled for next year because the workshops are fully booked.
Here, too, I assume that the situation will not change significantly in the near future.
Craftsmen only make exceptions when there is a significant price increase.
But only a few can afford a further price increase - because building has already become significantly more expensive.
When will prices go down again?
That might take a while.
In 2021 there was a price increase in construction prices of 6 percent.
A further increase of 4 percent is forecast for 2022.
How the market situation develops afterwards depends on the availability of materials and the company's capacity utilization.
I don't think the market will calm down anytime soon.
After all, who can still afford to own their own home?
Fewer and fewer people.
Even a high earner's income is often no longer sufficient for a financed purchase.
Many cannot afford to build or buy without family support.
Those who inherit a larger sum have a clear advantage.
How do the expensive construction prices affect rents?
Due to the low supply of rental apartments, rents are already at a very high level and – taking into account the economic situation – are exhausted in many regions.
It is therefore often difficult to pass on the expensive construction costs to even higher rents.
Here we are in a dilemma.
The lower return leads to less newly built rental space, which further increases the shortage.
Buy a house, build a house or rent a house. What do you recommend?
That depends on the situation.
Owning a home can be an important part of retirement provision, an emotional milestone in life, a long-cherished dream.
But owning a home can also be a burden: you have to take care of it, you should save money for repairs and maintenance and so on.
From my experience, many different aspects come into play here, all of which should be included in the decision-making process.
The only thing I can recommend is that no one should buy a property just because it is now almost a requirement - by the state, the media and often in their own environment.
Do you have any advice for builders on how to deal with adversity?
Everyone has to deal intensively with the current situation in advance - not only with the topics of construction costs and financing, but also with the topics of actual needs, sustainability and energy efficiency.
Many make the mistake of not including this in the project.
In my experience, a well-executed project consists of three phases: decision-making, planning, and implementation.
The decision-making takes place internally, it is about forming your own opinion.
Planning includes the implementation of your own ideas in the input and approval planning as well as the description of services and the selection of the construction companies.
Both aspects usually require at least the same amount of time.
And only then should construction begin.
