European Economy. Economic Papers. Germany's growth performance in the 1990's

Box 2: Developments in the German construction sector
B2.1 Large differences between West and East Germany
The Eastern part of Germany saw its construction investment more than double in real terms
between 1991 and 1994 only to fall back by more than 30% in the period up to the year 2001
(Table B2.1). Nevertheless, in 2001 construction in the East remains 40% higher than in
1991. In the West, both the rise in construction investment in the early 1990s and the decline
in the period since 1994 have been much more moderate than in the East. In 2001,
construction investment in the West was 2.5% lower than in 1991, with the decline
accelerating recently.
Table B2.1: Construction Investment (in 1995 price
s
)
In bn. €
1991
1992
1993
1994
1995
1997
1999
2001
Total
218.85
242.16
246.53
263.58
258.76
247.63
248.84
228.45
Residential versus Non-residential
Residential
109.77
121.32
126.78
141.56
141.98
142.31
144.91
131.20
Non-Resid.
109.08
120.84
119.75
122.02
116.78
105.32
103.93
97.25
Regional Distribution
West Germany
184.22
192.61
187.22
189.85
183.26
176.34
186.89
179.60
East Germany
34.63
49.55
59.31
73.73
75.5
71.29
61.95
48.85
By Government
Total
38.45
42.07
40.80
40.35
35.11
31.17
32.48
30.28
- residential
1.55
1.44
1.27
0.98
0.83
0.93
0.77
0.88
- non-resid.
36.90
40.63
39.53
39.37
34.28
30.24
31.71
29.40
Source : Statistisches Bundesamt
Due to the strong rise in the East, construction investment in Germany as a whole was still
4.5% higher in 2001 than in 1991 (but down by 13% if compared to its peak in 1994). As is
evident from Table B2.2, this rise, however, does not affect all components equally:
residential construction is still up by almost one fifth, although 7.5% down from its 1995
peak. Non-residential construction performed clearly worse, being down by more than 10%
compared to 1991 and by more than 20% compared to the 1994 peak.
Nearly 30% of the decline observed in construction since 1994 is due to falling public
investment, practically all of it in non-residential construction. Falling investment by
enterprises makes up the remainder. In the industry sector alone, real construction investment
fell from € 22.57 billion in 1993 to € 16.46 billion in 2000
14
.
Government policy had a very strong indirect impact on construction, especially but not
exclusively via fiscal and other budgetary incentives. Important indirect influences on
construction stem from changes in rental legislation and immigration laws.