LONODN (Bloomberg) - Housing construction in Europe has taken a hit due to interest-rate hikes, which are aimed at tackling raging inflation but inevitably exacerbating supply-chain issues, sending the cost of loans and building materials soaring.
The wealthiest nations are among the hardest-hit. New building permits in Germany dropped by over 27% in the first half of the current year, while France saw a 28% year-on-year decline in the number of such licenses as of July 2023. Meanwhile, home building in the UK is projected to fall by over 25% this year.
Sweden is currently experiencing its worst housing slump since a crisis in the 1990s, with building rates less than a third of what’s deemed necessary to keep up with demand.
Residential building across the region has significantly tumbled over the past 16 months as the cost of construction supplies has soared, while mortgage rates have nearly tripled. At the same time, sluggish bureaucracies and increasingly tough energy-efficiency regulations are aggravating the headwinds.
In the UK, the rate of residential construction has consistently failed to meet a target of 300,000 dwellings a year set by the government back in 2019. Some 45,000 residential property builders have filed for bankruptcy over the past five years in the country.
In Sweden, where the government made a constitutional pledge to provide affordable housing, supply of rental apartments has also been failing to keep up with demand for decades. This is inevitably driving up home prices, forcing people to live in black-market sublets. The nation recorded 1,145 companies in the construction industry failing in the first 10 months of the current year, an increase of 35% from 2022.
Meanwhile, Germany, where affordable housing was one of the key commitments made by the ruling coalition in 2021, will be unable to reach its goal of adding 400,000 new homes annually until 2026, according to economists.
However, housing starts in Portugal and Spain are reportedly exceeding levels recorded in 2015, when the aftermath of the debt crisis froze building activity in both countries. But there are still severe shortages, showing the construction sector is facing enormous challenges, while initiatives to attract investors, including Portugal’s golden visa program, have sent home prices surging.