Austria: Saving 13,200 jobs in the construction industry: 4-point subsidy program makes it possible

January 18, 2024

The proposed 4-point subsidy program from BRANCHENRADAR Marktanalyse would be one way of boosting new construction in the detached and semi-detached house sector in a very short space of time

A detailed study by BRANCHENRADAR on behalf of the Blue Lagoon shows the predicted development of residential construction over the next three years and offers concrete approaches to boosting the market and preserving jobs using the example of detached and semi-detached houses.

Residential construction in free fall

Building permits for residential construction have been falling massively since 2020: while a total of 63,600 residential units in new buildings were approved in 2020, this figure will fall to just 33,900 units in 2023. Naturally, this also affects detached and semi-detached houses: With presumably 11,200 homes approved in 2023, the number has fallen by 42 percent compared to 2020 (19,400). No trend reversal is expected for 2024.

The reasons are well known: Massive increase in interest rates since the end of 2022 with increased financing costs, restrictive granting of property loans due to the KIM regulation (required equity share of 20 percent of the investment sum, debt service ratio of no more than 40 percent of household income) and, in parallel, the rise in construction prices (disproportionate to the construction costs) by around a third. Land prices have been rising sharply since 2015. The combination of the factors outlined above means that both commercial and private builders can no longer afford the costs.

Erich Benischek, owner and managing director of the Blaue Lagune exhibition center and client of the study, calls on politicians to take action: “This 4-point program is almost cost-neutral, but creates urgently needed living space, orders for the construction industry and the preservation of thousands of jobs.”

How great will the economic damage be in the future?

As part of the study conducted by BRANCHENRADAR Marktanalyse in December 2023, the economic damage and the impact on the employment situation for the entire residential construction sector were examined, the topic of renovation was examined for possible cushioning and, in a third step, a 4-point support program for the single and two-family house sector was developed, which leads to a win-win situation for all parties involved. Here are the results:

Massive slump in construction output

The construction output value in new residential construction has already fallen to EUR 15 billion in 2023 (EUR -1.1 billion compared to 2022). This negative trend will intensify: in the following years (2024 – 2026), a further EUR 10.3 billion in new construction volume will be lost cumulatively, of which EUR 4.8 billion will be in the detached and semi-detached house sector.

Unemployment will rise rapidly

This development will have a dramatic impact on employment: While new residential construction employed an annual average of just under 90,000 people (full-time equivalent) between 2020 and 2022, this figure will fall to around 55,000 by 2026. To make matters worse, rising material and personnel costs are forcing companies to take optimization measures, especially as the market will no longer accept further inflation. It should also be borne in mind that a possible exodus of employees to other sectors (see the situation in the hospitality and hotel industry during the pandemic) could also have a negative impact on the construction industry in the long term.

Increased renovation rate cannot compensate for development

In 2023, around EUR 5.51 billion will be spent on renovating the building envelope and other thermal-energy measures in building construction. Even with a significant increase in demand, it cannot be assumed that the construction production value in refurbishment will increase by more than EUR 700 million per year – the subjective uncertainty among the population (global situation), lack of urgency and rising prices tend to speak against this. The loss of EUR 10.3 billion in construction volume in the years 2024 to 2026 can only be offset to a limited extent by an additional refurbishment volume of max. EUR 3.6 billion.

Detached and semi-detached houses – quo vadis?

In the area of new home construction, EUR 4.8 billion in construction output will be lost in the years 2024 to 2026 (based on the reference year 2023) if no measures are taken by politicians. The impact on the labor market will be fatal: while an average of around 65,000 employees can be attributed to the detached and semi-detached house sector (construction companies and upstream value-added segments such as the building materials trade and building materials industry) from 2021 to 2023, this figure will fall to 42,000 employees by 2026 – a loss of 23,000 employees. This will lead to a massive drop in taxes and duties as well as a substantial increase in unemployment benefits – threatening economic damage of more than EUR 3.2 billion!

4-point subsidy program creates a win-win situation

BRANCHENRADAR Marktanalyse was able to develop a 4-point subsidy program for the detached and semi-detached house segment until 2026, which will boost housing production in the short term and thus also prevent further unemployment.The 4 points arePartial relaxation of the KIM ordinance (income-dependent), granting of an investment premium of 20 percent of construction costs (capped and staggered over time), bonus for municipalities for building permits in the single and two-family home sector and a binding reduction in construction prices in relation to construction costs.Effects of these measures*An additional 15,000 approved residential units could be expected by 2026, of which 13,000 could be built within the program period.The result: an increase in the value of construction output by a total of EUR 4.8 billion and the preservation of 13,200 jobs (annual average) in the construction sector (construction industry, building materials trade, supplier industry).The net program costs for this amount to around EUR 143 million – this does not yet take into account the loss of purchasing power of people in unemployment and its impact on consumption. It can therefore be assumed that the calculated net program costs are highly unlikely to come to fruition and that the 4-point program would therefore only be beneficial.

*Estimation using a specially developed simulation model with processing of long-term data on the effectiveness of state subsidies (EU and national institutions) and panel surveys in the target groups.

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