Housing construction is declining faster than expected, research shows

The construction of new homes is expected to decline even faster than previously predicted, said the Economic Institute for Construction (EIB). The Institute calculated that construction will probably drop off by 6.5 percent this year compared to last year. For next year, the independent research agency expects another fall of 8 percent.

Earlier this year, the researchers assumed a decrease of 3.5 percent in 2023 and 5.5 percent in 2024, said EIB Director Taco van Hoek.

The EIB assumes that total construction output, which also includes renovations and road construction, will fall this year not by 1.5 percent, as previously estimated, but by 2 percent. The expectations for 2024 have now been adjusted from a dip of 2 percent to 2.5 percent.

Van Hoek said the EIB has observed the biggest contraction in new construction. He attributed this to disappointing sales and the granting of fewer permits, saying their was a fall in new permits of 30 percent in the first quarter of the year. The problem lies with "difficult locations that are also a lot more expensive to realize due to increased construction costs and interest rates," he said.

The number of new construction homes completed this year is expected to be around 69,000, the EIB estimated, well below targets set by the Cabinet of about 100,000 per year. That will fall further to 66,000 in 2024, and 65,000 in 2025.

Van Hoek elaborated on the sharp decline in residential construction. "The chance that it will be better than expected is small. It seems rather that it will decline a little further." Many construction projects have been put on hold for the time being, he noted.

Still, the director does see opportunities when it comes to choosing locations for new projects. "Look at small-scale locations, on the edges of existing buildings. Those can be finished faster and are financially a lot more feasible than many large projects in the city."

The construction of non-residential buildings is also decreasing, the EIB noted. These are buildings that are not used for living purposes, such as schools, offices, factories or shops. Van Hoek said he expects that there will also be a decrease of around 8 percent next year. This year, he says, the decrease will be limited to about 2 percent. The situation is hardly rosy for infrastructure projects, with construction in this area expected to reduce by 5 percent in the next two years, Van Hoek said.

Despite all the declines, the EIB did see a bright spot. "When renovating and restoring buildings, considerable investments are made in sustainability. As a result, we see growth in installation and infrastructure companies in particular that are involved in the energy transition. I expect sustainability to be the only growth market in the next two years."