The cost of constructing new residential buildings continues to rise in Germany, as high international demand and limited transport capacities drive up prices for raw materials. This was exacerbated by a temporary increase in VAT.

Construction prices experience record increase

Figures from the Federal Statistical Office show that the construction of conventionally manufactured residential buildings increased by 14,4 percent in November 2021, compared to the same month the year before. This increase is the largest in construction prices since 1970, when, in August, construction prices rose by 17,0 percent compared to August 1969.

The main reason for the rise in constriction costs is a rise in prices for building materials. Wood, steel and insulation materials have all gotten more expensive over the past year, mainly due to high domestic and international demand and limited capacities for transport creating global supply issues.

In terms of structural work, the prices for carpentry and wood construction experienced the highest rise of 38,9 percent, although the cost of other building jobs, such as roofing and roof waterproofing (17,1 percent), plumbing (16,8 percent) and concrete work (16,5 percent) also rose significantly. Overall, the prices for structural work on residential buildings rose by 15,7 percent between November 2020 and November 2021.

The withdrawal of the temporary cut to VAT also helped to drive up prices in November. Without this return to the regular VAT rate, statisticians revealed that prices in the construction industry would have increased, but only by 11,6 percent. The cut-rate VAT is now back in place.

Are constructions costs in Germany only going to get higher?

The Ifo Institute for Economic Research, based in Munich, conducted a survey that found that 34,5 percent of companies experienced delivery problems in November 2021, a value that only declined to 31,3 percent in the following month. At the same time, while VAT has been reduced again, prices for materials and structural work remain high. "Significantly higher material prices put construction companies under additional pressure," said Ifo expert Felix Leiss. "In building construction, in particular, companies are planning to pass the costs on to the builders in the coming months."

Hans Peter Wollseifer, the President of the Central Association of German Crafts, believes that construction prices will never return to the prices they once were. "Private customers wait longer for craftspeople and pay significantly more," he said. “Building will become more expensive in the future, not just because wages are rising, but because the prices of materials are rising. Because it is already becoming apparent that prices - even if the material shortages relax - will not completely fall back to the pre-crisis level. "