Construction Industry in Germany: Structural Data on Production and Employment Facts and Figures for 2010

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1 Construction Industry in Germany: Structural Data on Production and Employment Facts and Figures for 2010 Abstract Research programme: Future of the Construction Industry Project timeline: September August 2011 File reference: On behalf of: The Federal Ministry of Transport, Building and Urban Development (BMVBS) as well as the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) Agent: Deutsches Institut für Wirtschaftsforschung DIW Berlin: Martin Gornig, Bernd Görzig, Hendrik Hagedorn and Hella Steinke

2 2 Construction Volume Development Medium term trends suggest that despite several set-backs Germany s construction industry is heading for growth. In 2010, real construction volumes registered 10% above those recorded in 2005, with the latter marking an all-time low in long-term reporting. After five consecutive years of steady decline, 2006 saw the first strong and renewed growth in construction volumes, although much of this development was due to a major one-time effect: Germany s value-added tax increase towards the end of the year. 2008, too, commenced with a positive growth trend in line with a strong economic environment. And despite the onset of financial crisis some time during the second quarter, the overall fiscal year results still showed an increase of 2.3 per cent after adjustment for price. Once again, this growth resulted almost entirely from an exceptional upsurge in commercial construction, an expansion that lasted well into the fourth quarter and gained this segment an annual growth rate of 6.6 per cent (table 1). Table 1 Key data on the development of Construction volumes in Germany in billion euros at the respective year s prices change in % Total construction volume Old Länder New Länder and Berlin indices = 100 Price development Old Länder New Länder and Berlin in billion euros at 2000 prices Total construction volume Old Länder New Länder and Berlin By construction sector Housing Old Länder New Länder and Berlin Commercial Old Länder New Länder and Berlin Public sector Old Länder New Länder and Berlin According to company seat. Source: Calculations and projections by DIW Berlin based on official construction statistics. In 2009, the year of crisis, construction proved extremely resilient. Compared to the previous year s figures and adjusted for price, construction volumes only dropped by 1.3 per cent and

3 3 thus did significantly better than the economy as a whole; in the same year, Germany s GDP had dropped by 4 per cent in real terms. Commercial construction even bucked the trend and grew at a slightly above-average rate. Nevertheless, the construction industry owed a lion s share of this stability to public support measures. For example, the state s extension of its energetic building modernisation programme an integral part of the first economic stimulus package or the official increase of the deductable maximum for household-related services both had a direct impact on housing construction volumes. All in all, residential construction declined only slightly by 1 per cent. Direct government building initiatives also helped to stabilise the industry. Thanks to the state s stimulus packages, public surface construction even grew by 3.5 per cent in real terms. In 2010, these stimulus packages and state incentives continued to bolster and invigorate the construction industry, although compensation and substitution effects as well as rising prices limited real-term growth of public construction volumes to 2.5 per cent. Commercial construction, on the other hand, enjoyed a marked and generally unexpected upturn in 2010 despite a sharp slump in While this might be a direct result of renewed optimism and demand expectations as well as the industry s increasing capacity utilisation, one should not forget the ongoing momentum and effect of the state s stimulus packages. Generally speaking and according to projections, commercial construction volumes in Germany grew by almost 1 per cent in At the same time, residential construction has undergone a series of strong structural changes over the past few years, driven by a clear shift from new construction activities to improvement and maintenance measures on existing buildings (see table 3). Financial market volatility, among other factors, suggests a continuation of this trend in residential construction. Compared with other reputedly secure financial investments, housing once again promises attractive returns. And this trend is further strengthened by public measures from the first stimulus package. Nevertheless, new residential construction also shows signs of recovery, albeit starting from a relatively low level. After the 2009 slump, real-term residential construction volumes are expected to rebound by 4 per cent in All in all, building activities in Germany most likely topped 2009 construction volumes by 2.5 per cent in 2010, reaching a nominal value of 290 billion euros (table 1).

4 4 New Construction In 2009, new residential construction volumes in Germany amounted to a nominal 31.4 billion euros (table 2) perhaps the lowest ever result recorded since the country s reunification. This downward trend did not start overnight, but developed in several surges: Periods of relatively stable new construction volumes were succeeded by years of substantial decline was one of those years. Compared to 2006, new construction dropped by almost 19 per cent. By 2008, this decline in new construction had finally slowed down, yet the rates of decrease remained very high at a nominal 13 per cent. In 2009, however, the industry showed first, tentative signs of recovery and a stabilisation of new residential construction at a relatively low level. Table 2 Structure of housing construction services in Germany in billion euros at the respective year s prices Volume of new construction Private residential buildings Apartment buildings Construction on existing build ings 2 Total volume of housing construc tion change in % Volume of new construction Private residential buildings Apartment buildings Construction on existing buildings Total volume of housing construction composition in % Volume of new construction Private residential buildings Apartment buildings Construction on existing buildings Total volume of housing construction Projections on the basis of estimated construction costs (construction activity statistics) plus surcharges for architectural fees and services, outdoor facilities and investors own contributions. 2. Building and housing modernisation measures (incl. conversion and extension work) as well as maintenance and renovation services by the construction industry. Sources: Federal Statistical Office, statistics of construction activity; calculations of construction volumes by DIW Berlin; survey of architects by Heinze GmbH; 2011 projections by DIW Berlin. Against this background, 2010 heralded a strong upward trend in new residential construction. For multi-storey dwellings, growth rates most likely exceeded 10 per cent. And after prolonged lean times, new construction of owner-occupied buildings, too, saw a marked upturn.

5 5 Compared to the previous year, nominal growth of new housing construction easily surpassed 8 per cent in At a little under 28 billion euros (nominal values, table 3), 2010 projections of new nonresidential construction activities are almost on par with new residential construction volumes at an estimated 34 billion euros. However, it should be noted that new construction of nonresidential buildings went through a number of different phases. Between 2003 and 2005, for example, nominal new construction volumes in this segment dropped sharply, falling from 32 billion euros to just above 24 billion euros. In line with the 2006 global economic recovery, construction of new nonresidential buildings picked up again and growth rates approached 7 per cent, followed by impressive increases of 10 per cent in both 2007 and At the same time, these growth rates also reflect the strong upward price trend of construction services in general. Table 3 Structure of construction services of nonresidential buildings in Germany in billion euros at the respective year s prices Volume of new construction Offices, administrative buildings Hotels, restaurants, institutions Production, trade and storage structures Other nonresidential premises Construction on existing buildings Total volume of nonresidential construction change to the previous year in % Volume of new construction Offices, administrative buildings Hotels, restaurants, institutions Production, trade and storage structures Other nonresidential premises Construction on existing buildings Total volume of nonresidential construction composition in % Volume of new construction Offices, administrative buildings Hotels, restaurants, institutions Production, trade and storage structures Other nonresidential premises Construction on existing buildings Total volume of nonresidential construction Including agricultural buildings. 2 Including all other non-agricultural buildings. 3 Construction volumes in commercial and public construction. Sources: Federal Statistical Office, statistics of construction activity; calculations of construction volumes by DIW Berlin; survey of architects by Heinze GmbH; 2011 projections by DIW Berlin.

6 6 Generally speaking, new nonresidential construction declined slightly (by 2 per cent) in 2009, triggered by a marked drop in the new construction of production, trade and storage facilities due to the burgeoning export crisis. And while other areas of new construction enjoyed encouraging momentum in 2009, by 2010 these were also affected by the repercussions of the global crisis. Office and administration buildings as well as hotels, restaurants and institutions registered two-digit declines. Across Germany, new nonresidential construction dropped by more than 8 per cent.

7 7 Construction services on Existing Buildings While long-term trends point towards a steady decrease of new construction, maintenance measures continue to grow in importance. According to DIW calculations, 156 billion euros were spent on residential construction in Of this, a little over 34 billion euros went into new construction services while the rest i. e. more than 122 billion euros was spent on residential renovation and maintenance measures (table 2). According to these figures, maintenance-related construction accounted for 78 per cent of all residential construction last year a sizeable rise from 64 per cent in And this trend is also evident in nonresidential construction. According to projections, new construction accounted for 28 billion euros of total construction volumes (almost 84 billion euros) in 2010, leaving 57 billion euros for nonresidential maintenance measures (table 3). Thus, two-thirds (or 67 per cent) of all nonresidential construction was maintenance-related last year, rising from 55 per cent in In order to chart this rising importance of construction services on existing buildings, DIW published its first set of model calculations on the structure of maintenance and renovationrelated construction volumes, also incorporating survey and statistical projection data from a Heinze GmbH study. The results demonstrate that, at 100 billion euros in 2010, partial modernisation measures accounted for the lion s share of all residential maintenance measures, while almost 14 billion euros were spent on maintenance and repair services. Third and last in line, comprehensive modernisation measures might only account for the smallest share of this particular construction segment, yet they still managed to attract 8 billion euros in Compared with new residential construction volumes (around 34 billion euros) this is a sizeable sum and a major factor in the provision of living space at new construction standards (table 4). In nonresidential construction, too, work on existing buildings was dominated by partial modernisation measures. In 2010, almost 30 billion euros went into related services. At the same time, partial modernisation only accounted for 50 per cent of all construction on existing nonresidential buildings far less than in housing where partial modernisation claims more than 80 per cent. In nonresidential construction, comprehensive modernisation as well as general maintenance and repair play a more prominent role. According to DIW model calculations, and in accordance with national accounts and Heinze GmbH projections, both of these categories attracted around 14 billion euros each. In monetary terms, 2010 maintenance and

8 8 repair spending was the same in residential and nonresidential construction while expenditure on comprehensive modernisation measures even exceeded the amount spent on new construction of nonresidential buildings (28 billion euros). Table 4 Structure of construction on existing buildings in 2010 Residential construction Nonresidential construction Total construction in billion euros Comprehensive modernisation measures Partial modernisation measures Maintenance Total Share of energy efficiency related retrofitting composition in % Comprehensive modernisation measures Partial modernisation measures Maintenance Total Share of energy efficiency related retrofitting Sources: Federal Statistical Office; Heinze GmbH; 2011 calculations by DIW Berlin. It should be noted that retrofitting measures to increase energy efficiency played a major part in elevating the impact of construction on existing buildings. As part of the construction volume calculations, more than 57 billion euros were spent on such measures in Of these, energy-efficient retrofitting of housing accounted for more than 42 billion euros while nonresidential improvements claimed a 15-billion-euro share, highlighting the increasing importance of energy-related retrofitting measures for the construction industry as a whole. Today, almost a quarter of all surface construction falls into this category. At the same time, these figures disprove the widespread public notion that maintenance measures are solely motivated by state incentives and the promotion of energy-related retrofitting: At least twothirds of all construction on existing residential buildings and three-quarters of such measures on nonresidential structures is not directly attributable to such incentives.

9 9 Employment Figures in Construction Ever since the mid-1990s, employment in the construction industries has fallen at a steady rate. A comparison of different statistical sources, however, reveals considerable disparities (table 5). According to official statistics, employment dropped by almost a quarter between 2001 and 2005, discounting the stabilising effect of small businesses. Taking these into account, calculations by DIW Berlin arrive at a significantly lower drop in construction-related employment for the period in question: According to DIW figures, employment declined by little more than 20 per cent between 2001 and And factoring in a boost of marginal employment, VGR figures even postulate a decrease of merely 16 per cent. Table 5 Comparative data on employment in the construction sector * 2010* figures per 1000 individuals Official census (TE) 1 Main construction industry Finishing trades In-house calculations (DIW) 2 Main construction industry Finishing trades Difference between census and DIW figures National accounts (VGR) Difference between DIW and VGR figures * Due to changes in the reporting cycle, figures in italics are not strictly comparable with previous results. 1 Employees working in construction companies (including trainees) and self-employed individuals (actively involved owners and relatives who assist). Data for the reference month of June. 2 Employees working in construction companies (including trainees) and self-employed individuals (actively involved owners and relatives who assist). Data for the reference month converted into annual means. 3 Corresponds primarily to employees in companies in the finishing trades with fewer than 10 employees. 4 Individuals working in Germany irrespective of duration of work or other main sources of employment. Annual average. 5 Figures correspond roughly to the number of part-time employees in the construction industry. Sources: Federal Statistical Office, Fachserie 4, Reihe 5.1, Beschäftigung und Umsatz der Betriebe im Baugewerbe; Fachserie 14, Reihe 8 Umsatzsteuer; Fachserie 18, Reihe 1.4, Volkswirtschaftliche Gesamtrechnung. Calculations and projections by DIW Berlin. Since 2006, the stable and in part even expansive development of production volumes has helped to reverse this downward trend. According to calculations by DIW Berlin, 2006 annual averages heralded a strong employment boost. Over the following years, employment levels remained relatively stable with a modest upward trend in the finishing trades offset by a slight decline in main construction.

10 10 Official statistics even suggest a slight uptick in employment. However, due to changes in the reporting cycle, the 2009 results are not directly comparable to those from So, despite the 2009 drop in real production volumes, statistics registered relatively unchanged figures thanks to employment-stabilising government measures that triggered a temporary lowering of average employee productivity. In turn, and despite a very strong increase in real production volumes, employment only grew by a moderate amount in 2010.