As Austria grapples with a sharp decline in new residential construction, the real estate industry faces mounting challenges in meeting housing demands, Austrian media has reported. 

Experts have alerted that construction starts in the residential segment are plummeting, with numerous projects either postponed or halted, signalling a pressing need for intervention to address the growing housing shortage.

Daniel Riedl, a member of the Management Board of Buwog’s parent company, Vonovia, underscores the economic difficulties in developing affordable, high-quality residential properties. With no construction starts planned for 2024, the industry is at a standstill, grappling with rising interest rates and persistently high construction costs, he explained. 

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“Our aim is to start construction as soon as the situation has eased,” said Riedl. However, it is not yet possible to predict when market conditions will improve, he added.

Rental apartments particularly hit

Building rental apartments has become financially unviable for developers, with generated values falling below production costs, as explained by Riedl.

Karina Schunker, Managing Director of EHL-Wohnen, highlights a staggering supply shortage of over 50 percent in the rental apartment sector, exacerbating demand pressures. Consequently, terminations of existing rental contracts have decreased.

“Residents are staying in their apartments due to a lack of alternatives,” Schunker said.

While the search for apartments has surged in the purchase segment, the realisation rate, or how often people actually buy a home, has declined. Prospective homebuyers increasingly face hurdles as banks demand pre-selling rates from developers before construction starts, aiming to mitigate risk.

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Rising interest rates have compounded affordability challenges, making condominium purchases unattainable for many private buyers.

Schunker stresses the financial constraints and says that potential consumers have almost shrunk completely down to buyers who have an inheritance available, and can meet the 20 percent equity requirement and monthly loan instalments rules.

The repercussions of these challenges are reflected in plummeting new construction figures, with Vienna expected to witness a significant decline of over 46 percent in completed apartments compared to the record year of 2019.

Experts anticipate further decreases in 2025 and 2026, signalling an inevitable housing shortage in the sector.