The number of building permits is “in free fall,” wrote the economically liberal think tank Agenda Austria in a press release on Monday. This applies to new living space for natural persons as well as for companies and non-profit building associations, according to Agenda Austria with its own estimate based on data from Statistics Austria. The institute sees the combination of the interest rate turnaround and new rules for home loans as the cause and warns of a continued housing shortage.
In total, there were building permits for around 2.5 million square meters of new living space in Austria in 2023. Between 2010 and 2021 it was usually twice as much, in some years even 6 million square meters.
The interest rate turnaround, which led to an increase in loan interest rates, and the so-called “KIM regulation”, which prescribes stricter criteria for granting loans, both took effect in mid-2022 and together led to the massive decline in building permits, Agenda said -Austria economist Jan Kluge on Monday to the Austria Press Agency.
According to Kluge, it will hardly be possible to “unravel” which of the two factors contributed to how much of the decline. The loan interest rates, which are usually still below the inflation rate, are by no means “too high”. But an increase from sometimes just one percent to over three percent “really resonates with people.” However: “We can only lower interest rates when inflation is under control and that is not yet the case in Austria,” said Kluge.
For Austria, where inflation has been twice as high as the Eurozone average for months, an interest rate cut might even come too early, warns Kluge. But it must be clear that the time of “super, super cheap interest rates” is over and that “no more construction will be done just because the money had to go somewhere.”
In addition to the higher interest rates, there is an increase in construction costs, which is included in the calculations. It doesn’t change that, according to data published today, Monday by Statistics Austria, the construction cost index for residential construction only increased by three percent in the last twelve months up to March – well below the general inflation rate. The strong increases of recent years are still included in the calculations. And the “KIM Regulation” excludes some households from lending. The regulation should be repealed “sooner or later,” says Kluge, and one must trust the bank to clarify what burdens borrowers can handle.
But it’s not just the planning of new buildings that’s stalling. Austrians are also less motivated than in previous years to renovate their living space, writes the industry radar with reference to the market for paints and varnishes. This fell by one percent in 2023, although prices rose by 3.6 percent.
“Consumers continued to increasingly visit restaurants or cultural events, travel at home and abroad or take part in sporting activities. In many places there was therefore a lack of time – and motivation – for renovation work in the house and home,” complains the industry radar.
