Key risks for Europe
What a continued crisis could mean
Given that there is a delay between housing permits & completions, 2024 is expected to further deepen the problem of the construction industry and without significant intervention, we see notable risks within the European Union construction markets.
Societal impact
Europe already faces a substantial housing deficit, with Germany lacking around 700,000 units [10] & 9 major European cities projected to run a combined gap of up to 1.2M units by 2030 [12]. Furthermore, over 25% of young Europeans live in overcrowded conditions (i.e. less than 1 room per adult) [13] & homelessness increased by 30% since ‘19 [14]. In addition, the influx of migrants into the EU, competing for limited affordable housing, is fueling social tensions, hindering the integration of migrants.
Economic impact
Given that construction investments contribute >10% of the EU’s GDP, the direct economic risk is evident [1]. However, there are also secondary effects, e.g. reduced consumer spending due to layoffs in the sector and due to continuously increasing rental costs limiting the discretionary spending power of consumers. The housing deficit can also limit innovative industrial growth, e.g., Northvolt seems to struggle with their plans to ramp up their first battery-cell factory in Sweden as the lack of housing makes it difficult to attract enough workers [15].
Workforce impact
Beyond the increase in bankruptcies, we start to experience increasing number of layoffs in the industry that could further worsen the shortage of skilled labor with significant long-term impact (as seen in the HoReCa sector post-Covid). Layoffs could result in future supply constraints, thus further driving price levels that have been surging over the past years. Supply constraints could be further increased due to reduced investments in construction resulting in a lack of efficiency improvement.
Environmental impact
The crisis also poses a significant risk to the EU's decarbonization goals as limited new construction slows the adoption of energy-efficient housing. Furthermore, the slowdown in new constructions directly threatens the European Green Deal's ambitious target of renovating 35 million buildings for by 2030, as fewer new builds typically also lead to a decrease in renovations, a process often initiated by a chain of relocations and property upgrades.