Company bankruptcies loom

Housing crisis: new construction falls to a record low

Experts warn of a wave of bankruptcies in the construction industry

(Bild: Daniel Ernst - stock.adobe.com)

Demand for rental apartments is rising, but the market for owner-occupied apartments has collapsed. According to experts, far too few apartments are being built due to high prices and strict regulations. A vicious circle.

The construction of new apartments in the German capital is experiencing a historic slump. Completions are expected to fall by 10 percent as early as 2024, while the Vienna Chamber of Commerce (WKW) forecasts a year-on-year decline of up to 38 percent for 2025. This is according to the latest "New Construction Report", which was compiled by the real estate platform Exploreal.

No room for additional households
After a boom in 2022 with around 17,000 completed residential units, Vienna is facing an abrupt turnaround. "There is a massive slump in new construction," warns Michael Pisecky, Chairman of WKW's Real Estate and Asset Trustee Group. According to forecasts, the decline could even reach 80 percent by 2026. What is particularly alarming is that the decline affects both private and social housing.

Without support, there is a threat of a wave of bankruptcies among property developers, which could further weaken the construction industry.

Michael Pisecky, Fachgruppenobmann der Immobilien- und Vermögenstreuhänder

Bild: Florian Wieser

Cost explosion and bureaucracy as a brake
There are many reasons for the crisis. The average price per square meter for new-build apartments is currently 7,000 euros, as the report shows. Added to this are construction costs of up to 4000 euros per square meter and land prices of around 1300 euros - twice as high as in Lower Austria, for example. "Prices have gone through the roof. This makes it almost impossible for many property developers to implement projects economically," explains property developer Hans Jörg Ulreich. However, around 65 percent of new residential construction in Vienna is carried out by commercial developers.

(Bild: Krone KREATIV/stock.adobe.com)

Development is at a standstill
However, they find themselves caught in a double squeeze: On the one hand, construction costs are rising ever higher; on the other, they are having difficulties selling the apartments they have already built. This is leading to a clear reluctance to undertake new projects. "If no new apartments are built, it becomes difficult to imagine that additional households will find space in Vienna," explains Matthias Grosse, one of the authors of the report. Another stumbling block is the strict regulation. Regulations such as parking space requirements or the protection of the cityscape make renovations and extensions extremely difficult, especially in the inner districts. "The cityscape stands still, but development also stands still," criticizes Ulreich. As a result, building activity is increasingly concentrated on the outer districts.

An instrument like the former housing investment bank is needed to create liquidity and boost new construction again.

Hans Jörg Ulreich, Bauträger

Bild: Florian Wieser

New municipal building occupied

In Favoriten, the Willi-Resetarits-Hof at Laxenburger Straße 4A has now been handed over to its 350 residents. It is the eleventh new municipal building since the resumption of the program in 2015 - a total of 1316 apartments.

Migration to the outskirts of Vienna 
With 18.55 completed residential units per 1,000 inhabitants, the 22nd district (Donaustadt) tops the list of construction activity. In the inner districts, on the other hand, the construction rate remains low - a development that not only puts a strain on the urban structure, but also jeopardizes ecological goals such as "getting out of gas". However, property manager Nicole Fürntrath lacks the framework conditions: "Clear guidelines and simple approval procedures are needed to implement thermal renovations and sustainable heating systems. Incentives can convince residents to make the switch." Without this, it would be impossible to achieve the climate transition.

People lack the money to buy
The demand for condominiums has also halved. This is due to the sharp rise in interest rates, the uncertain economic situation and the KIM regulation, which makes it difficult for many people to get a loan. "Property developers are not selling what they are building. At the same time, they can't start anything new because they don't have the financing," says Ulreich. There is no money to build urgently needed rental apartments. Although the city is responding, it will not be able to meet the demand on its own. Since 2015, a total of 836 top-floor council apartments have been created or are currently under construction. Eleven new municipal buildings have also already been occupied.