Dramatic Decline in Austrian Housing Construction – Causes, Consequences, and Possible Solutions
The Austrian housing construction market has faced a severe crisis in recent years: the number of housing construction permits has dramatically dropped, and, in tandem, the construction sector has come under significant pressure. Wolfgang Amann, Managing Director of the Institute for Real Estate, Construction, and Housing (IIBW), provided a detailed analysis of the root causes of these problems and the potential steps to recovery in a recent interview.
Why Have Housing Construction Permits Fallen So Drastically?
The sharp decline in the number of housing construction permits can be traced to a combination of factors, which Amann summarized into four key points:
-
Rising Interest Rates
Higher loan costs have significantly reduced demand for new housing, particularly among younger people who were planning to build or purchase their first home. -
Strict Financial Regulations
Austrian financial regulations—such as the rule that household debt repayments cannot exceed 40% of their income—have particularly disadvantaged young families, restricting their ability to qualify for loans. -
Increase in Construction Prices
Construction costs rose by 22% between 2020 and 2022, further limiting the options for both the general public and real estate developers. -
Declining Subsidies
The reduction in social housing construction subsidies has exacerbated the situation, as the absence of the stabilizing role previously played by government support has put a brake on the market.
Impact of the Crisis
Stakeholders in the construction and housing markets have been facing severe consequences:
- Real Estate Developers: Many companies have gone bankrupt due to reduced demand.
- Small and Medium-Sized Enterprises: Smaller players in the construction sector, such as carpenters and other specialists, have also suffered significant losses.
- Supply Chain Issues: The construction material manufacturers and suppliers have been feeling the downturn as well.
In 2023, the number of permits granted was just 47,200, a 35% decrease compared to the ten-year average. The per capita housing construction rate fell to 3.8, down from 5.6 in 2022, and close to 8 in the late 2010s.
Government Intervention: Is It Enough?
Austrian Chancellor Karl Nehammer announced a 2 billion euro housing construction and renovation program at the beginning of the year, with the goal of building 20,000 new homes and renovating 5,000 properties by 2027.
Several measures have already been introduced under the program, such as waiving the land registration fees for first-time buyers and offering tax incentives for renovations. However, the response from the regions has been slow, and the utilization of available resources has not reached the desired level.
How Can the Crisis Be Addressed?
Amann outlined several proposals for the government to consider:
- Encouraging Decarbonization: Housing renovations should be supported through cost-sharing among homeowners, property owners, and the state.
- Supporting Young People: Housing programs targeting young people should be made more accessible.
- Regulatory Reforms: Modernizing building regulations and taxing vacant properties could help stimulate the market.
- Predictable Support Systems: The creation of a housing development bank would stabilize the support mechanisms.
Challenges and Prospects for the Future
Austria's goal is to increase the current homeownership rate of 48% to 80% by 2030. However, Amann believes that the current measures are insufficient, and further reforms are necessary to make homeownership more accessible to young households.
Although government interventions have been initiated, industry players continue to face challenges. Increasing subsidies and reforming building regulations may slowly stabilize the market, but without deeper changes, a rapid recovery is unlikely.
