Housing investment is unlikely to gather momentum

The number of companies reporting a “shortage of labour” in
the monthly ifo survey has not only risen to an all-time high, but actually doubled
within 12 months. Another factor contributing to capacity restrictions is the
construction industry’s reluctance to visibly expand investment in construction
equipment. A resumption of the grand coalition would imply additional
hindrances.

Although the rent brake, in effect, fails to cap rents, the Social
Democrats stick to their plans of rent-control legislation, in addition to
demanding stricter protection for tenants. Likely to slow new construction and
fuel prices and rents, this additional attempt to undermine market mechanisms
would be counterproductive. A CDU minority government, on the other hand,
argues for more positive impulses, as a majority in the new Bundestag favours
strengthening new construction over tightening protection for tenants.
2016’s hefty two-digit increase in new orders and building permits was not
repeated in 2017.

New orders inched up by only around 5%, and building
permits retreated from their extremely high levels in 2016. In view of pent-up
demand in recent years – the order backlog is near its record high – we
nonetheless expect housing investment in 2018 to pick up slightly to above 5%
year over year.

Correspondingly, new residential units ought to rise to 335,000,
in our view. Whilst this would mark a strong increase from 305,000 units in 2017
(date of release: June 2018), it would fall short of the need for at least 350,000
homes, thereby further exacerbating scarcities on the housing market. By 2019,
at the earliest, supply could for the first time in ten years exceed demand in the
current cycle.