Housing volume

In the past two years, developments in European residential construction were dramatic: in 2008 and 2009 construction volume in the 19 countries analysed by the Euroconstruct group fell by one fifth overall - - back to 1995 levels. For this year a moderate decline in residential construction activity of  about 2 per cent is expected.

New residential construction will have plunged in the three years from 2008 to 2010 by 36 per cent. In contrast, repair work on on existing homes will only have fallen by about 4 per cent in the same period. With output valued at €580 billion, residential construction volume in Europe has fallen back to the level of 1995.

“This is by far greatest portion of this shrinkage occurred in 2008 and 2009, so that the reduction of the enormous overcapacities has by now been nearly concluded,” according to Erich Gluch, construction expert at the Ifo Institute for Economic Research, at the University of Munich. “Especially firms in the primary construction sector had to dismiss a considerable number of employees, which has further worsened the situation on the labour market. In contrast, the outfitting construction sector has escaped with relatively little damage.”

The experts at the Euroconstruct group, which comprises institutes from 15 western and 4 eastern European countries, forecast that the recovery of housing construction in Europe will be weak over the forecast period 2010 to 2012. Total housing construction in 2012, at €609 billion, will be just 3 per cent above the level of 2009.

Gluch says responsibility for the drastic correction on the European housing markets lies primarily with the high prices for residential real-estate, in Spain, Ireland, the UK, France and Sweden.

“The apparently unclouded profit outlook attracted more and more speculators. But also private households often bought units that were in fact too large for them,” Gluch said. “The excess production of past years will dampen new construction for some time to come.”

Germany is a positive exception in this regard. Prices for residential property has stagnated for many years, and new home construction has shown anything but signs of overheating.