After new construction, the renovation market is also in the doldrums

Significantly fewer building materials have been produced in recent months. This is because the new construction market is drying up and there are also concerned signals about the renovation market.

In October, Belgian companies that make flat glass and building materials used only 74.7 percent of their production capacity. This is a significant drop compared to January, when the sector was still using 90.2 percent of its capacity, according to the National Bank of Belgium. Only during the height of the corona pandemic in April 2020 was the figure lower (73.5%).

The figure is a new flashing light for the construction sector. The decline in production of building materials is due to the fact that construction companies have less work. Demand for new construction is drying up. This is because building has become a lot more expensive in recent years.

The interest on mortgage loans has risen from about 1 percent to 3.5 percent. In addition, building materials have become tens of percent more expensive since the corona crisis. The uncertainty about the reduced VAT rate of 6 percent for demolition and reconstruction also slowed down demand in recent months.

Recticel also sounded the alarm on Friday. The insulation manufacturer lowered its profit forecast after a 17.5 percent decline in turnover and warns that the European construction market will shrink further.

There were already worrying signals about new construction, but now there are also concerns from the renovation sector. 46 percent of companies that renovate private houses expect to do less well next year than this year, says the construction federation Embuild.

Another telling statistic is that, according to Statbel government statistics, the number of permits for renovations in June fell by 16 percent compared to June 2022. In addition, banks granted 30 percent fewer loans for renovations in the third quarter year on year. The number of loans for new construction fell by 53 percent.

In the sector it can be heard that orders are still at the same level, but that dark clouds are gathering. “We receive 60 percent fewer requests from private individuals,” says Roel Coose, manager of the insulation installer Eltherm. ‘We also notice that customers are more critical and wait longer to order. We must make more efforts to convince them. I am neutral to negative for next year. I don’t think we will grow. We are heading towards a economic downturn.’

The negative trend in the construction sector is already reflected in employment. The number of temporary workers fell by 7.6 percent in the second quarter compared to a year earlier, reports the Bouwunie, the federation of small and medium-sized construction companies. Moreover, more workers leave the sector than join it. In the second quarter, 13,330 employees said goodbye to the sector, while only 11,352 joined.

Falling demand has put an end to the increase in building material prices. According to figures from the Federal Public Service Finance (see graph), they started a steep upward climb in the summer of 2020. But since the beginning of this year there has been a stabilization and even a decline. Prices remain well above pre-corona levels.

‘Some building materials have become very expensive in recent years. Now there is a correction,” says Anja Larik, economic advisor of the Bouwunie. ‘Wood, steel and plastics, among other things, became cheaper.’

Yet the sector does not expect prices to fall to pre-corona levels. “They won’t come back,” says Larik. ‘The prices of many composite building materials are influenced by things that have become fundamentally more expensive, such as energy and personnel. Moreover, some basic raw materials such as bricks and sand remain expensive. Only a major international crisis in the construction sector can bring prices down significantly. We don’t expect that immediately.’

If the renovation sector ends up in a contraction scenario, this may be short-lived. The government forces people to renovate poorly insulated houses. That will create a lot of work, according to the sector.