'Construction shrinks for second year in a row'

The downturn in construction, previously heralded by lower permitting, is now a reality, says ABN AMRO in its latest sector forecast. A combination of high interest rates, grid congestion, increased construction costs and slow and demanding procedures is bothering new construction in particular. The sector shrank in 2023 and can count on less activity for 2024 as well. During 2025, recovery is expected to occur in several subsectors.

The sector is shrinking due to a combination of high interest rates, a crowded power grid, increased construction costs and complex procedures. "Over the next few years, margins will come under pressure from higher labor and material costs, while this will not be offset by sufficient productivity growth," the construction economists conclude.

The contraction is mainly caused by stagnant new residential and commercial construction. "Additional limiting factors are a lack of available building sites and difficulties in getting or expanding electricity and water connections," the report states.

ABN AMRO forecasts that the construction sector will shrink 2.5 percent this year, following a 2 percent decline last year. By 2025, the sector is expected to stabilize. Residential construction is faring worst this year, shrinking 6 percent. In 2025, the decline in new housing construction is expected to reach 4 percent.

The downturn is strongly felt in housing construction. The enthusiasm for new construction-buying homes fell far in 2023 when mortgage interest rates rose and the price of new homes did not fall accordingly. High interest rates also got in the way of developers. Combined with minimum requirements for the number of affordable homes to be developed, it made projects less financially feasible. Many planned new construction projects were postponed or stopped starting as a result.