Masonry industry calls for discussion on use of state subsidies

DGfM Managing Director Dr Ronald Rast on the impact of the Ukraine war and climate change

High energy prices, supply bottlenecks for important raw materials, corona-related staff shortages, uncertainties due to the Ukraine war - according to a recent survey by the Institute of the German Economy (IW), the construction industry in particular sees itself threatened by a recession. In an interview, Dr Ronald Rast, Managing Director of the German Society for Masonry and Housing Construction (DGfM), explains what the situation is like for companies producing masonry units, how politics should take countermeasures and why the masonry industry is indispensable for achieving climate and housing construction goals.

Dr Rast, you surveyed your member companies in the second quarter of 2022 on the impact of the Ukraine war. What was the result?

Dr. Rast: At the end of the previous year, we had still expected a further slight increase in construction activity of one to two percent for 2022. But after the outbreak of the Ukraine war, the members we surveyed now expect that construction activity could decline by about one to two percent in the current year and noticeably thereafter. We are feeling more and more that supply chains in construction are disrupted and that we are increasingly affected by rising prices for binders, energy and fuel. In addition, transport space has become scarce due to a lack of truck drivers. All this adds up and, according to our members, means that they will have to pass on the additional costs to their customers.

What concrete consequences are to be expected?

Dr. Rast: With regard to the production and supply of bricks, the companies expect necessary price increases from autumn 2022 at the latest. And that is still the more favourable scenario. If gas deliveries from Russia come to a complete standstill, there will certainly be plant closures and short-time work. The first shutdown of a company in the roof tile sector with reference to the extreme increase in gas and electricity prices over the past two years has now taken place on 1 September 2022. Companies are more worried about their competitiveness than they have been for a long time. They also realise that they have to invest in an energy supply based on renewable energies faster than planned. And this with an increasingly uncertain development of the construction industry from 2023 onwards.

What does this mean for the industry and the customers?

Dr Rast: The passing on of additional costs and the increasing introduction of price escalator clauses make every construction project more expensive. Investors and builders may therefore be forced, or have already been forced, to postpone construction projects or shelve them altogether. As the Munich-based ifo Institute has just reported, more than one in ten companies in the residential construction sector (11.5%) have already been affected by cancellations since July 2022. Of course, this is then also reflected in the companies in the masonry industry. If this would only occur temporarily on this scale, it would still be bearable. But there is no certainty of that. At the moment, the majority of companies expect double-digit declines from 2023 onwards. And the current development of building permit figures unfortunately confirms this. This is first apparent in the case of private builders, who not only have to cope with delivery problems, price increases in construction and significantly higher construction interest rates, but also with extremely rising living costs - in other words, they are currently practically burdened twice over. If, however, the energy supply were to be cut off in the form of a gas supply freeze, that would be the super-GAU. Numerous plants would then have to stop production and apply for short-time work. Then it would no longer be possible to build because material would be missing.

How should politics counteract this in your view?

Dr. Rast: In our first survey at the beginning of the year, the members pleaded for securing the energy supply, for investment subsidies and for maintaining technological openness. Already in the second spring survey, there were additional demands for financial aid, for a reduction/capping of energy costs and for a reduction in the taxation of fuels.

How systemically relevant is the masonry industry?

Dr. Rast: In 2021, 137,000 housing units (WE) were built in Germany in privately financed multi-storey housing construction, almost 99,000 WE in detached and semi-detached houses, about 21,000 WE in social housing construction and another 37,000 WE through construction measures on existing houses. In single- and two-family house construction, significantly more than 70 percent of all houses are built of masonry. In multi-storey housing (privately financed and social housing), the figure is just under 70 percent - making masonry construction the clear market leader among the wall constructions used in housing.

According to a study published in July 2022 by the Pestel Institute in Hanover, the construction of masonry buildings generates an annual turnover of around 60 billion euros, a value added of almost 80 billion euros and employment for a total of 1.178 million people.

To put it bluntly: without the masonry industry, the traffic light coalition cannot achieve its housing construction goals.

Can the 400,000 new flats planned annually - including 100,000 social rented flats - be realised at all in view of the energy and material problems?

Dr. Rast: For a long time, residential construction was the driving force of the building industry. Now it is not only losing momentum. We are apparently facing a recession, at least from 2023. This has been stated by more and more leading associations of the construction and housing industry. In addition to the facts already listed, the first half of 2022 will see a funding chaos surrounding KfW funding. The repeated abrupt halt to KfW funding has put many builders in financing difficulties and undermined confidence in the Federal Government's policy. Policymakers must do everything they can to make the framework conditions more reliable and to make building more affordable and easier. With regard to the budgets for housing promotion, this should definitely be reflected once again in the upcoming budget debates of the German Bundestag for the budget planning from 2023 onwards - especially for social housing promotion! With the funds considered so far by the federal government, but also specifically by the majority of the federal states, the housing construction goals set cannot be achieved at the moment. Here, the interaction between the federal government and the Länder is often no longer comprehensible. The citizen who can no longer find adequate housing does not care whether federal or state policy has failed. In addition, in the current situation we need the courage to take unconventional measures and to ease the burden - temporarily at first if necessary - in the area of building and permit planning. And the rising construction interest rates naturally increase the attractiveness of interest-free loans and long-term building loans for private builders. In the fiscal area, it is imperative that a decision be made quickly on easing the real estate transfer tax. Perhaps the planned increase in depreciation from two to three percent can be brought forward again.

Would serial construction be a key in this situation?

Dr. Rast: I think we should no longer dwell on theoretical discussions about a definition of serial construction. At the latest since the last building boom after reunification, it has been proven in practice that working with typified floor plans and precisely fitting prefabricated wall constructions that can be processed as quickly as possible is enormously advantageous and, when applied repeatedly, enables the development of additional scaling effects not only in planning but also in processing. We already investigated this specifically in the 1990s and found significant reductions in construction time up to the 15th repetition in the erection of typified residential buildings when working with the same construction teams. Practically all masonry block manufacturers have long offered large-format wall systems prefabricated in the factory in addition to the classic masonry blocks. What means significantly more preparation and planning effort is working with room-sized wall panels or entire room cells that are no longer manageable in terms of weight and dimensions with the usual logistics chains. This effort is only worthwhile if there is a certain number of units and demand. Why do I refer to the connection between the construction system and demand in this way? As a still young manager in the masonry industry, I experienced that many construction companies, which had practically exclusively switched to large-format and prefabricated building systems during the construction boom phase of reunification, wanted to be supplied with small-format two-hand bricks again overnight from 1997 onwards. The reason for this was simple: they preferred to work off the fewer orders slowly and continuously with their permanent staff than to go on short-time work every few days and risk losing the remaining skilled workers as well. Perhaps one should consciously not suppress such experiences today.

Building should become cheaper and climate-neutral. How can this be balanced?

Dr. Rast: Well, with masonry, for example! In terms of production and life-cycle costs, masonry construction is more than ten percent cheaper to produce - and up to 25 percent cheaper over the life cycle - than other construction methods.

In addition, solid masonry buildings can reduce heating costs by more than ten percent each year, in contrast to houses of lighter construction that are comparable in terms of energy efficiency. This is because masonry stores heat energy during the day and releases it back into the interior in the evening. That's why in solid buildings, heating starts later in autumn and stops a little earlier in spring - you still feel comfortable. By the way, another advantage is that solid buildings do not heat up so much in hot summers - they are about three degrees Celsius cooler inside than comparable lighter buildings. This creates a more pleasant living environment and is easy on the environment and on the wallet.

So much for the costs. And as far as greenhouse gas emissions are concerned: compared to other construction methods, a masonry building has the smallest ecological footprint. Over a real life cycle of about 80 years, including deconstruction, masonry apartment buildings emit about four percent less CO2 than comparable houses built with timber frames. And about 94 percent of the masonry that is dismantled is already being used again today. This means that masonry construction is already an economical and climate-friendly building method.

But that is not all. Due to the political goal of only being allowed to construct climate-neutral buildings by 2045, my entire industry has set out on the path to climate neutrality, especially in the last three years with scientific support. In the process, issues such as recarbonatisation were examined in depth for the first time and led to astonishing findings. Recarbonatisation, i.e. the ability of cement- and lime-bound masonry blocks to absorb CO2 from the air over their entire life cycle, must be taken into account in all future considerations of construction methods. It has been proven that masonry blocks are capable of permanently storing up to 70 kg of CO2 per tonne of material used over the entire life cycle. This means that buildings made of masonry, which are increasingly being constructed with more and more climate-friendly products, will contribute to a CO2 reduction effect in the building sector.

... but then why are there so many timber construction initiatives?

Dr. Rast: I ask myself the same question. We in the masonry industry still need wood in construction to be able to finish the houses that are mainly built with masonry blocks - for example for roof trusses, windows, doors and stairs. Incidentally, the Hamburg market researcher Prof. Mantau once determined that because of the high market shares in stone houses, more cubic metres of timber are brought into the market than directly in timber houses. Planners and builders have long since found their optimum for the use of certain building materials without government intervention. Actually, we have always been building so-called "hybrid houses" - if you define them as houses that consist of several building materials. There are neither pure wood nor pure stone houses. For the foundation alone, both still require concrete.

In view of the climate protection targets that have been set, the masonry industry still has to make great efforts to be able to follow the path already taken towards climate-neutral building materials as quickly as possible. In view of the damage to our forests, particularly since 2018, I have great understanding for the fact that state funds are being spent on reforestation as well as on the conversion and protection of our forests against the increasing effects of climate change.

But why at the same time - also with state funds - ever new timber construction offensives are being launched, which lead to even more removal of trees from our forests and, especially in the construction industry, are supposed to replace supposedly more environmentally harmful building materials and energy sources with increased use of wood, probably needs more comprehensive discussion than ever. The WWF points to a wood consumption in Germany that is already more than twice as high per capita as in international comparison. Mr Wohlleben repeatedly points out the critical situation in our forests and the manifold functions of intact forests. Mr Sobek warns of a CO2 sequestration gap if we take more wood out of the forests right now.

It is also and especially necessary to discuss the effect of building materials over their entire life cycle, including deconstruction, as well as the permanent storage of CO2 in building materials - even after deconstruction! Where can and must finite state resources be used sensibly in order to achieve the set climate protection goals as quickly and as sustainably as possible?

Dr. Rast, thank you for the interview.

About the DGfM

As an umbrella organisation, the German Society for Masonry and Housing Construction (DGfM) represents the political, economic and technical interests of the masonry block producing industry. In the field of standardisation, the DGfM participates in the development of national and European guidelines. Another focus of the association is the promotion of residential construction, more than 70 percent of which is built with masonry in Germany. Masonry construction secures 413,000 jobs and contributes to an annual added value of almost 80 billion euros.

Über die DGfM

Als Dachverband vertritt die Deutsche Gesellschaft für Mauerwerks- und Wohnungsbau (DGfM) die politischen, wirtschaftlichen und technischen Interessen der Mauerstein erzeugenden Industrie. Im Bereich der Normung wirkt die DGfM an der Ausarbeitung nationaler und europäischer Richtlinien mit. Ein weiterer Schwerpunkt des Verbandes ist die Förderung des Wohnungsbaus, der in Deutschland zu über 70 Prozent mit Mauerwerk errichtet wird. Dabei sichert die Bauweise Mauerwerksbau 413.000 Arbeitsplätze und trägt zu einer jährlichen Wertschöpfung von fast 80 Milliarden Euro bei.

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