New boost for house prices: Historic jump in construction costs

Building costs in Germany have risen faster than they have been in 51 years.

The prices for all preliminary work and materials relating to the new building rose by 12.6 percent in August compared to the same month last year, as the Federal Statistical Office announced on Thursday.

That was the strongest price increase since November 1970. The prices for carpentry and wood construction have increased particularly sharply due to the lack of wood, increasing by 46.5 percent.

But also concrete work was 14.8 percent more expensive, expansion work 11 percent.

Christian Siedenbiedel

Editor in business.

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The sharp rise in construction prices is affecting Germany at a time when real estate is already becoming more and more expensive.

Real estate prices have risen by a good 10 percent in the past year, reports the Institut der deutschen Wirtschaft (IW), which, together with the housing company Accentro, presented the “Homeownership Report 2021”.

Although the number of apartments sold in Corona year 2020 was lower than in the previous year, the price increase more than offset this effect on the total volume of transactions to 36 billion euros, said IW real estate specialist Michael Voigtländer.

In the meantime, the credit broker Interhyp reports that this year the house prices have risen in some cases almost as much as in the full year 2020. So it goes on.

It is not just the low interest rates that are to blame

Noteworthy: For a long time it was mainly the low interest rates and the housing shortage that were cited as reasons for the rising prices for houses and apartments, as the economist Karsten Junius from Bank J. Safra Sarasin points out.

Now there is another important factor: rising cost pressures.

Real estate specialist Voigtländer speaks of a “new phenomenon”, although building prices have of course also increased in the past.

At the moment, however, it is particularly noticeable.

There are not only bottlenecks in raw materials and materials.

There is also apparently a labor shortage.

Corona is said to have exacerbated the shortages again;

be it through hygiene regulations on the building itself, be it through difficulties with the deployment of workers, for example from Eastern Europe.

It is not yet clear whether this is only temporarily the case or whether it will remain so for a longer period of time.

Just as the central banks believe that the rise in inflation even after the Corona crisis is normal and will soon disappear, the bottlenecks in construction could also be of a temporary nature.

But that's open.

Construction wages are currently being negotiated

An important question is whether wages on construction are now also rising, says real estate expert Voigtländer.

The trade union IG Bauen-Agrar-Umwelt is currently negotiating with the construction industry about collective agreements;

under certain circumstances, the biggest strike in 20 years threatens the construction sites (FAZ on Thursday).

The union started the collective bargaining round with a demand for 5.3 percent more wages.

The boom in construction and the shortage of workers also determine these negotiations: The Ifo Institute published a study according to which a third of the construction companies complain about difficulties in finding skilled workers. In civil engineering, 38 percent of the companies lacked suitable applicants.

The “Homeownership Report 2021” sees these bottlenecks particularly strong for all trades that are necessary for the energetic renovation of buildings. 75 percent of all vacancies in heating, plumbing and air conditioning remain vacant, and things are not looking much better for insulation specialists. One reason is the increasing academization, the craft businesses are not finding enough young people. If the new federal government wants to do a lot with building climate protection, it will have to renovate more, said Voigtländer. In the period from 2010 to 2020, 0.8 to 1 percent of the apartments in Germany were energetically renovated. If Germany wants to achieve the climate targets, it would have to double the rate per year. That would cost around 500 billion euros by 2050.

"A sensitive point here are the points of friction between climate and social policy," said Voigtländer: "The poorest people usually live in the houses that most urgently need to be renovated." That should make it comparatively difficult, increased renovation costs on rent to kill.

Some rents depend on inflation

At the moment, in any case, many project developers are trying to pass the overall rise in construction prices on to home buyers, the experts report. But that succeeds with different degrees of success. Tenants could even be hit by the higher inflation rates themselves in the medium term. After all, the inflation rate in Germany rose to 4.1 percent in September. Voigtländer reports that important standard rental contracts, for example from the owners' association Haus und Grund, provide for an “inflation indexation” of the rent, reports Voigtländer: If inflation then rises, the rent can also be increased.

There are similar regulations in some euro countries for salaries in the public sector.

Luis de Guindos, Vice President of the European Central Bank, recently brought up the idea of ​​suspending such inflation indexing of wages this year because the rise in inflation is only a temporary phenomenon.

He did not suggest that for inflation-indexed rents.

However, expert Voigtländer reassures: The rental contracts stipulate that inflation would have to remain high for a little longer so that the rent would rise - a single extreme month would not be enough.