Why don't construction prices go down?

Even if inflation is only 3% y/y, the new price level remains "forever." Prices, by definition, are not allowed to fall back to, for example, 2020 levels - that would be deflation, and before that happens, the money printing machine will be started up again. What previously rose by 9% - for example from 100 to 109 euros - will now cost 112 € (3% inflation).

What nonsense. In some areas, you already have deflation today, which is completely normal. Just compare the following items with May 2022: diesel, electricity, natural gas, butter. Here you have deflation on an annual basis. I do not want to exclude that this could also be the case for other products in the next few years. TVs have also been declining in price over the last 50 years.

In the construction industry, I rather experience that many people still act arrogantly and try to squeeze the customers. Why does an owner-occupied apartment currently cost almost 5,000 euros per m2 in our town (a small Bavarian town with 5,500 inhabitants) for a new building, and only just over 3,000 euros in Suhl (Thuringia, 35,000 inhabitants)? That certainly isn't just due to the wages for the craftsmen there.

That is why there is the so-called core inflation. Energy always fluctuates quite wildly, and food as well (keyword [Schweinezyklus]). However, when inflation manifests itself in double-digit wage rounds, prices hardly go down anymore. That only works if you either replace people with cheaper machines or by relocating abroad. Or if you cut salaries. The potential for the first is already quite exhausted; for the second, the situation has to be really bad.

In the construction industry, I rather experience that many still ride high horses and try to squeeze customers. Why does an owner-occupied apartment currently cost nearly 5,000 euros per m2 in our town (a small Bavarian town with 5,500 inhabitants) for a new build, and only just over 3,000 euros in Suhl (Thuringia, 35,000 inhabitants)? That certainly isn’t just because of the wages for the craftsmen there.

No, it’s not just about the wages – you hardly notice them in a developer’s cost calculation at all. Nor about the overall construction costs, which differ maybe 10% between a metropolis and a small town. The remaining difference lies – as always with real estate – in location, location, location. And thus in the land price. That’s why the same owner-occupied apartment would cost maybe 13,000€ in Munich instead of 3,000€ or 5,000€. In Munich, the land share is already 8,000€ for every sq meter of living space.

Such nonsense. In some areas, you already have deflation today, which is completely normal. Just compare the following items with May 2022: diesel, electricity, natural gas, butter. Here you have deflation on an annual basis. I do not want to exclude that this could also be the case for other products in the coming years. Televisions have also been on a price decline over the last 50 years.

Familiarize yourself with the inflation targets of the ECB, FED, and BOE. They all have positive inflation targets. We will not experience deflation – nothing else means a return to the old price level. For that, Japan was far too much of a deterrent over the last decades.

Explanation see .

Deal with the inflation targets of the ECB, FED, and BOE. There are positive inflation targets everywhere. We will not experience deflation - nothing else means the return to the old price level. Japan has been far too discouraging for that in recent decades.

Explanation see .

But then you should also look at the shopping basket that underlies the calculation of inflation as well as the associated weighting. Currently, we are experiencing a clear price reduction for some products compared to the previous year. This has a positive effect on inflation and slows it down, examples: diesel, natural gas, electricity, butter, and edible fats.

Some products also become cheaper over the years, which is partly due to production processes and sales volumes. Example: price of a mobile phone in the early days and in 2023. The first mobile phone back then cost 3,995 dollars. Currently, none on the market costs that much.

Why shouldn’t new buildings become cheaper? Many houses are still built as they were 100 years ago. There is still considerable potential for optimization in manufacturing.

Why shouldn't new buildings become cheaper? Many houses are still built as they were 100 years ago. There is still considerable potential for optimization in manufacturing.

The question is whether that also brings advantages in reality. Schwörerhaus already does quite a lot with prefabrication up to complete bathroom modules. Nevertheless, in practice a Schwörerhaus is not cheaper than a comparable house from the competition and calculated from the contract conclusion or building permit, it is also not faster. Single-family houses are single pieces and small series after all. It could look different in multi-family house construction, but the land shares there are often expensive. If new buildings become cheaper again, it will mainly be when material prices fall. There is certainly potential, keyword heat pump. And if less expensive things are prescribed. However, the tendency is going in the opposite direction.