By 2025, many European countries will see a decline in residential construction due to cost hikes and real estate market uncertainty. Germany is expected to see a 32% drop.Fewer homes will be built in a swathe of European countries in the coming years, according to a study published Wednesday by the ifo Institute in Munich.

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Germany is expected to see a 32% drop in new housing construction between 2023 and 2023, the report said. This is only topped by Sweden at 39% and Denmark at 33%, according to the research carried out by Euroconstruct, an independent construction market forecasting network.

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In Germany, the Ifo forecasts the completion of 200,000 homes in 2025 compared to 295,000 last year. This could lead to an increase in housing prices.

However, there are also countries where residential construction is expected to pick up, in Ireland, for example, by 17%, Portugal 15%, Spain +12% and in Slovakia 3%.

The reasons for the decline in new home construction include a recent surge in interest rates, rising construction costs, and uncertainty among builders and buyers.

Affordable housing still needed

The study predicts that a total of 1.58 million homes will be completed in the 19 European countries examined in 2025, a 14% decrease from 2022.

However, many potential homeowners in Europe cannot afford to enter the housing market, even if prices are dipping slightly after years of growth. Many cities in Germany and Europe are stuck with a shortage of affordable housing.

Figures released last week by the EU showed that prices fell for the second successive quarter. In total, the index has fallen by 2.9% over the space of six months, which serves to discourage investment in new housing.

"The general uncertainty about the medium-term development of real estate prices is causing widespread restraint among builders and prospective buyers," ifo construction expert Ludwig Dorffmeister said.

Germany's Macroeconomic Policy Institute (IMK) has advocated that more public funds be spent on constructing affordable housing to fill the gaps left by dwindling investment from private construction companies due to rising costs.

lo/wmr (dpa, Reuters)

(The above story first appeared on LatestLY on Jul 20, 2023 01:50 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).