Fewer personnel – higher material costs: why construction projects are becoming increasingly expensive

Cities and municipalities complain that too few homes are being built. But those looking to create living space need to first finance the work before achieving a fair market profit. The media is gradually raising public awareness of the extent to which rapidly-increasing construction costs are becoming a hindrance for many building projects. According to a study conducted by the German Institute for Economic Research (DIW), construction prices have risen by a third since 2005. In February 2019 the Federal Statistical Office recorded a 4.8 percent increase in the costs of residential buildings compared to the same month the preceding year. Five years earlier the price increase was just 1.7 percent. Trades enterprises in particular have moved their profit margins up significantly whilst the number of employees has remained relatively constant. Moreover, there is also an increasing shortage of everything required for construction: in addition to a lack of personnel, this also includes the building land available and the cost-intensive – as increasingly scarce – construction materials. Who would have thought that a shortage of concrete or steel could emerge so quickly? Collective pay increases and statutory regulations are also driving prices upwards. According to WELT, many construction companies have responded by strengthening their equity base. One third of construction firms now has an equity ratio of 30 percent. This is the conclusion drawn from the analysis: things will not get any cheaper for those looking to build in the near future. The entire sector is enjoying a boom, apparently unaffected by the decline in building approvals over the last two years.