Heat pumps are hard to come by, steel is absurdly expensive, and there are many new regulations: “Building is currently a complete disaster,” says contractor Dirk Salewski. It’s going to be unpleasant for customers, and property developers are letting their plans rest.

Salewski is the managing partner of Beta Eigenheim and President of the Federal Association of Free Real Estate and Housing Companies.

What is the biggest headache for contractors like you right now?

Dirk Salewski: It’s a total catastrophe at the moment. Building has never been easy, but at the moment it is anything but subject to entertainment tax – because everything is difficult: there are too many building regulations, extremely tough planning processes, and protests from residents are increasing – according to the principle “not in my backyard” everyone wants the new building, but not in your own neighborhood. And now, in addition to the frenzy of regulation, we also have the turbulence on the raw and building material markets and constantly increasing requirements from new energy laws. Catastrophic.

Are the renovations already digging the water out of the new building?

And how. You wouldn’t believe how many customers from property development measures call us and say: “My contract says I’ll get brand X heating. And now I have brand Y heating.” As a property developer, we are happy if a heater is delivered at all. At the moment, even as a large construction company, we only get one heater a week from the manufacturer, and the boss then decides which top customer gets it. Private individuals with single-family homes are no longer getting devices anyway. Especially no heat pumps.

Heat pump manufacturers have been overrun by customers since the gas crisis. Is there a chance of improvement?

There are no pumps at the moment because chips are no longer coming out of China due to the pandemic. This is also due to the fact that Taiwan no longer supplies films for chip coating. The same chips are also installed in cars, washing machines and heating pumps. This is where it takes revenge that we outsourced everything for years, i.e. our local economy. Now we’re pretty much all hanging like flies on a flypaper from a manufacturer in China. I’ve heard of automakers buying up lots of washing machines to upgrade their chips. Isn’t that absurd? Like all my colleagues, I myself am currently not receiving any air conditioning, heat pumps or heating systems. And I’m a good and big customer, but we still have delivery times of up to six months.

I would have rather expected that the huge price hike would be your biggest problem.

That’s true, to name just a few examples: we’ve had a real steel crisis for four months. Last fall, a ton of construction steel cost 700 euros, four weeks ago it was 1,400 euros. Currently it is 1100 euros. Structural steel is a commodity and really not rocket science. And look at the price curve for lumber! The sawmills in the Sauerland are sawing like crazy, but because the prices for construction timber have gone through the roof with the Americans and Canadians, the Sauerlanders have delivered there and to China. This has led to shortages and sharply rising prices. With the onset of recession in the US, the market has eased somewhat. But in principle we have massive price increases in all products – just at different times and to different degrees, depending on how high the energy consumption and the availability of raw materials are. Then there are the last offshoots of the corona pandemic: If a case of illness occurs in a construction crew, the entire construction crew is absent for 14 days. As a building contractor, I am very dependent on craftsmen. If nobody shows up at the construction site, then nothing happens anymore.

Has building become an incalculable risk?

With complex construction projects, the risks have definitely increased massively. Anyone who bought a plot of land five years ago previously expected around three years of planning and two years of construction in the case of lengthy planning processes. And with a total of 15 percent price increase until completion. So, from the outset, a cost increase of around three percent per year was factored in. But if the prices for all kinds of building materials increase massively over the course of the year and also the energy and fuel prices for construction site vehicles, then that means a huge increase in the price of new buildings. For example, we signed the first contract for a project in 2018, but have not yet started construction because the approval process is still ongoing. It was already clear to us in 2020: This cannot work with the prices of 2018. Now we’ve also fallen right into the steel price trap. In underground car park construction, for example, the doubling of the price really has an impact. Then there is the problem with the European standards.

The Europe-wide uniform building standards? To what extent are they a problem?

As a result, everything has become much more complicated, including in the calculation. Put simply, we now need to put more steel in floors, not because it’s better – just to make it more consistent. And so, to put it bluntly, another European structural engineer can also get an order in this country in the future. Or take soundproofing: If the new standards stipulate that instead of an 18 ceiling, a 24 ceiling is now required in buildings, then that means 30 percent more material is used. And 30 percent higher costs. That and the skyrocketing prices, both of which make the new building extremely expensive.

This is bad for homebuyers – but how dramatic is it for property developers?

We make ten phone calls every day and explain to our customers and business partners that everything is getting more expensive. In addition, there are always phases in which something is missing: yesterday there was no insulation, today no heating, tomorrow something else will be missing. And politicians are compounding the problem by tightening the laws without industry being able to provide the necessary equipment and building materials.

How badly does the change in funding for energy renovations affect you?

This whole KfW number was chaos with an announcement: it was clear what would happen if the old government announced that there would be no more money for certain construction measures from February. It is logical that panic breaks out and everyone quickly submits applications. It was dramatic even for large housing associations, which had projects with many hundreds or thousands of apartments in the pipeline – and were not able to submit all the applications so quickly. In our BFW survey, we saw the effects: Take a financing plan for 20 apartments that was designed to give 50,000 euros in funding per apartment. That means a grant of 1 million euros. If it says: You won’t get this million anymore, the project sponsor has to increase the net cold rent by 2 euros so that the project still pays off. Every municipal housing association will turn you down: They can’t ask for rents that high! The end of the story is: The construction project is stopped.

This is exactly what happens in many places, but only because of the lower funding? The grants are flowing again, albeit a little less lavishly than before.

There can be no question of flowing. At best it’s still dripping. Only premium energy projects are funded, nothing more for broad sections of society. The funding freeze was a real blow for many planners. But a lot came together, the prices, the material bottleneck, the shortage of skilled workers – at the moment building is one thing above all: improvisational talent squared. That is why many property developers have put their plans on hold for the time being. All ongoing projects are of course completed, we can’t stop in the middle. We’ll finish that.

Even with a profit?

nope We will see that many projects do not even cover their costs. Of course, it depends on what phase of the project you are caught in. When the shell is in place, the windows and the technology are already installed, then it’s less of a problem. But if you were still missing the structural steel, you’re going to have a hard time. The contracts concluded are mostly contracts with fixed prices. It says, for example, that I, as a building contractor, will deliver on a turnkey basis at a price of 4,000 euros per square metre. I can negotiate price adjustments again with housing companies, but of course that’s not possible with consumers. And in contracts with craftsmen, we probably have to agree to price escalation clauses, because otherwise we wouldn’t be able to find any more contractors. But apart from that, the following applies to all concluded contracts: Pacta sunt servanda, the contracts must be observed.

Will we soon experience a wave of bankruptcies in the property development industry?

I don’t think so, we property developers are medium-sized companies. And German medium-sized companies are very robust. It can lead to some fortune hunters being wiped out of the market, yes. Also because the industry previously had very low capital costs during the project phases and the banks are now not only demanding higher interest rates, but also significantly more equity backing from some companies. This can lead to bankruptcies for these companies. But even for the honest merchants who have reserves, it will still be very tight. These are extraordinary times.

We have to say goodbye to the government’s 400,000 planned new apartments for 2022, right?

I don’t see that at all. In recent years we have already built less than 300,000 apartments. In addition, there are the 800,000 apartments that have already been approved – but have not yet been built. That alone would keep the industry busy for another two years. That’s why we won’t see a major slump in the number of completions this year, but there will be an all the more significant one next year and the year after that. For 20 years, politics has ensured that construction is becoming more and more expensive. She will soon notice that housing is becoming even more unaffordable for more and more people.

Nadine Oberhuber spoke to Dirk Salewski.

The interview first appeared on “Capital”