Regulation as a cost driver in the construction industry
Building is becoming increasingly expensive. While rising prices for building materials and higher interest rates are a direct burden, a growing number of building regulations and standards continue to contribute to the increase in construction costs. This report sheds light on the influence of regulatory requirements on construction costs and raises the question of the extent to which these standards are necessary and what impact they have on the housing shortage.
The role of standards and regulations:
In Germany, around 3,900 standards govern the construction industry. These range from the thickness of walls and the design of staircase handrails to the minimum size of kitchens. Since 2008, the number of these standards has risen by almost 25 %. The aim of such standards is to ensure safety and quality and to increase efficiency in the construction industry. According to the German Institute for Standardization (DIN), norms and standards should be applied in a targeted manner in order to save costs.
However, the question arises as to whether this is always the case. For example, if the minimum thickness of a wall is increased, more building material is required, which logically drives up costs. An investigation by SWR in spring 2024 came to the conclusion that not all standards are necessary and that some can be described as pure cost drivers. The ifo Institute also emphasized in a 2023 discussion paper that construction costs are also rising due to the increasing number of DIN standards.
Political discussion and measures:
This issue is also being discussed intensively at a political level. A package of measures to reduce construction costs, which was launched by the previous federal government, includes a review of standards, norms and legal regulations. The current government has also set itself the goal of reducing construction costs in order to create more affordable housing. State Secretary Rolf Bösinger emphasized the importance of this project in the Handelsblatt in August 2023.
In order to get a grip on the high cost burden, Federal Building Minister Klara Geywitz is planning to set up an inspection body that will determine the follow-up costs in the standardization process in order to create transparency regarding the cost effect of standards. The data situation is currently incomplete, which makes a conclusive quantitative classification difficult.
Research projects and findings:
Since October 2019, the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) has been conducting a research project to examine the cost impact of building standards on residential construction. To date, no quantitatively reliable results have been presented, which underlines the complexity of this topic. To date, the German government has only stated that "standards and norms as well as statutory regulations in the construction sector can lead to cost consequences" (source: German Bundestag, printed matter 19/7515).
Conclusion
While building regulations and standards are intended to ensure that construction quality and safety are guaranteed, they also contribute significantly to rising construction costs. In view of the pressing housing shortage and the need for affordable housing, evaluating the cost effects of building regulations remains a key issue for politicians and the construction industry. Measures to improve transparency and specifically reduce cost-driving standards could help to reduce construction costs in the long term and facilitate the creation of more living space.
It remains to be seen what concrete steps and results will be taken and achieved in the coming years.
Sources:
- German Institute for Standardization (DIN)
- German Bundestag, printed matter 19/7515
- SWR broadcast, spring 2024
- ifo Institute, Discussion Paper 2023
- Handelsblatt, August 10, 2023
- Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR)
This report gives you a sound insight into the current challenges and developments surrounding the cost drivers of regulation in the construction industry. We recommend that you continue to follow the progress of the measures and research results mentioned in order to make informed investment decisions.
Kind Regards
Matthias Holzmann
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