Builders, project developers and researchers have been warning Minister Hugo de Jonge (Housing, CDA) since last year: watch out that new construction does not come to a standstill. De Jonge wants to build no fewer than 900,000 houses by 2030 – and construction is slowing down right now. This is of great concern to all stakeholders.
The strange thing is that there is certainly no crisis going on in the construction sector. The industry delivered 74,000 new homes last year, the largest number in the past decade. In the first quarter, turnover of construction companies increased by 12 percent, and the industry is still desperate for people. These are golden times, especially for installation companies. They come into action around the time a home is delivered and can barely keep up with the demand.
But for the coming years, the predictions point to a significant dip in new construction. Partly due to a lack of construction sites due to the nitrogen crisis, the number of homes for which a building permit has been issued has been falling for two years. It was last year 16 percent lower than the year before. The decline was in the first quarter of 2023 even 28 percent, according to CBS. Meanwhile, consumer confidence is only falling due to increased construction costs and mortgage interest, while house prices are falling.
This decline is not equally felt everywhere in the construction industry. Several years elapse between approval of a zoning plan and the moment of delivery of a home. One industry is therefore not yet feeling the blow, while the other is. Companies at the start of the construction process are now experiencing the consequences of the faltering housing construction.
For example, designers of residential blocks and residential towers already have less work due to the stagnation of permits. Long queues of interested parties are a thing of the past on many projects, forcing project developers to push the limits of the risks they are willing to take. And because new construction is faltering, the demand for materials is also falling. As a result, the first factories will have to close their doors this summer and others are thinking about reducing working hours. Three signs of the turnaround in construction.
Signal 1 Less work for architects
Architects see themselves as a canary in the coal mine. When things go wrong in the new and renovation market, they are the first to notice. For more than a year now, architectural firms have seen their work stock fall – unique in the construction industry. That started with the rapid increase in costs for building materials during the corona crisis, and continues now that interest rates are rising and projects are being cancelled.
Not all agencies are equally affected by the weak market. The blows mainly fall on architects who focus on housing and have a lot to do with investors, says Jasper Kraaijeveld of the trade association BNA. Stricter regulation of the rental market by Minister Hugo de Jonge (Public Housing, CDA) certainly does not help. Kraaijeveld: “Professional and private investors are less likely to take on new projects, and architects are noticing this in the declining number of assignments.”
In the latest six-monthly survey of the BNA, 40 percent of the surveyed agencies said they expect a drop in turnover at the end of this year. While the labor market in the rest of the country is record tight, one in ten architectural firms expects to lose employees this fall.
Market conditions also influence the design that eventually comes off the drawing board, says Kraaijeveld. “As a result of the price increases, cheaper building materials are sometimes used out of necessity, or architects are asked to put a floor or residential unit on the drawing, which increases the value of the real estate. That design can be the deciding factor in the project developer’s calculation.”
Signal 2 More risk taken
Project developers are noticing that the increased mortgage interest is making new homes more difficult to sell. That is a problem, because usually the shovel does not go into the ground until 70 percent of the planned homes have been sold. Project developers use this percentage as a rule of thumb to manage their risks. After all, they have to finance homes that they do not sell themselves.
How this desire to keep risks manageable can now be seen in high-rise projects. Various planned residential towers have been withdrawn from sale in recent months due to disappointing sales.
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At the same time, other project developers are now taking greater risks. They start building before they have sold that 70 percent – a taboo until recently.
The Financial Times reported this week that some developers settle for 40 percent sales or even less in certain cases. The logic behind this: potential buyers only become really interested when they are sure that the project will be completed, says project development director Frank Klomp of construction company Van Wijnen. But that does not apply to all developers. At Van Wijnen, 70 percent is sacred, especially for large projects. “We want to keep financial space free to continue to purchase new locations.”
According to Klomp, he only starts building in very exceptional cases before 70 percent has been sold. “Then it concerns a few loose, ground-bound [met tuin] homes in locations we are sure we will lose. And then I have to get permission from our board of directors.
But it remains a sliding scale, with a lot of risk. Before you know it, you will be left with unsold homes and that will cost a lot of money.”
Signal 3 Less demand for building materials
Less demand for homes leads to less demand for piles, window frames, bricks and roof tiles. They notice that with the producers. Brick factories have their outdoor storage, the ‘bag fields’, increasingly full of stock. Orders are being canceled because construction projects are not going ahead, says director Ewald van Hal of the trade association for building ceramics KNB. The drop in orders is sharp: “In the first two months there was a 15 percent drop in sales for the masonry brick sector, in March and April no less than 32 percent. An unprecedented drop.”
This has consequences for the brick factories. This summer, market leader Wienerberger will reduce production in all its seventeen brick factories in the Netherlands by 10 percent. Three factories are on the pilot light for a longer period of time; instead of the usual three weeks, the ovens are set to a low temperature from June to September. Workers are temporarily transferred to other factories.
Other factories are also talking about these kinds of measures, says Van Hal. The lobby is now being set up with other trade associations in the building materials industry for a possible part-time unemployment benefit. “A reduction in working hours is not yet necessary at the moment, but we will see which way this goes,” says Van Hal. “You have to prevent personnel from flowing out of the building and not returning.”
A version of this article also appeared in the July 8, 2023 newspaper.