“Construction and real estate need to break free from silo thinking to overcome the crisis.”
The construction and real estate sectors are facing tough times, with no immediate improvement in sight. Activity is slowing down, despite the pressing societal challenges that require building, renovating, demolishing, and rebuilding. While there is rightful concern about the manufacturing industry, the importance and potential of the construction sector are being heavily underestimated. Embracing construction innovation can drive additional growth, benefiting everyone involved. The government, construction, and real estate sectors must tackle this together.
How do you reflect on the construction market in 2024?
Caroline Deiteren: It has been a year with few bright spots for construction. Following zero growth in 2022 and 2023, activity contracted by 0.4%, unlike the overall Belgian and Flemish economies, which did grow. The housing market is experiencing a severe crisis. Although more housing is needed, the number of new homes has declined for the third consecutive year. Last year’s drop of 7.4% was the largest since 2021. Experts, both domestic and international, agree that increasing the housing supply is critical to avoid further pressure on affordability. Renovation activity has stagnated, when it should at least triple to meet climate targets.
Did the non-residential market perform better?
Caroline Deiteren: Infrastructure works saw significant growth in 2024, up by 4.1%. Major projects like Oosterweel, recovery plans across different levels of government, and the usual surge in municipal projects during election years all contributed to this growth.
Do you expect improvement soon?
Caroline Deiteren: Few people are optimistic about the short-term outlook for the construction sector as a whole. For new builds, weak recovery is only expected by 2026 or 2027. A sharp drop in construction costs—especially labor costs—is unlikely. Although mortgage rates have slightly decreased, the downward trend hasn’t continued as some had hoped.
These cautious forecasts are based on more than just gut feeling. Building permit applications, a key indicator, have plummeted. The third quarter of 2024 saw only 11,243 applications, compared to 25,427 in 2019. It’s worth noting that permits typically take about 90 days for approval (excluding preliminary and appeal processes), and construction usually begins within two years. While about 70% of applications are approved, not all are executed. Lengthy appeals and financing issues are more common these days.
Are the outlooks better for the rest of the sector?
Caroline Deiteren: Applications for renovation, reuse, and demolition increased between 2018 and 2022 but have stabilized over the past two years. A significant push from this market segment seems unlikely in the short term. In 2025, infrastructure will also face challenges, as fewer projects are typically executed in the first year of a new legislative term. Many companies are delaying projects due to geopolitical tensions and political and economic uncertainty both domestically and abroad.
Some say Belgium’s economy is doing better than its neighbors. Does this apply to construction?
Caroline Deiteren: Not at all. In fact, the opposite is true for the construction sector. Issues like permit delays are also a persistent problem. The Flemish government has established an expert commission, which Embuild Flanders supports, and we have high expectations for their work. We’ll provide our input, but we also recognize that solutions won’t come overnight.
For construction, part of the challenge lies in fragmented local regulations and varying visions. Establishing clearer guidelines will take years. Regarding renovation policies, we feel there’s a lack of ambition. Shifting taxes from electricity to natural gas could be a game-changer, but the timing and approach remain unclear. Moreover, the new Flemish coalition agreement includes tough measures: the “Mijn VerbouwPremie” (My Renovation Grant) has been reduced, the reduced registration fee for major energy renovations has been abolished, and the renovation obligation is capped at energy label D, with buyers given an extra year to comply.
That doesn’t sound very positive…
Caroline Deiteren: We are explicitly looking to the Flemish government, which holds most of the authority in this area. Time is running out. Until 2023, construction companies in Flanders experienced relatively fewer bankruptcies compared to Brussels and Wallonia, but that’s no longer the case. Similarly, until 2019, startup survival rates were higher in Flanders, but this is no longer true either.
Still, I remain optimistic for the sector in the long term. The demand for housing and infrastructure will only increase. Policymakers in Flanders also recognize that multiple solutions are needed to address the construction crisis and improve housing affordability.
What are your priorities to boost the sector?
Caroline Deiteren: At the top of the list are permit procedures. They must be simplified and shortened. As for the construction shift, we’re willing to support it, but regulators should focus more on what’s possible rather than endlessly emphasizing restrictions. Excessive local regulations and overly detailed requirements at the street or neighborhood level are a burden.
We also advocate for digital permitting. If builders could instantly see the impact of a change to their application on approval chances with the click of a button, it would save time and money for everyone.
What about complaints in the real estate sector about high construction costs?
Caroline Deiteren: Lowering construction costs is not straightforward. While the prices of some materials may drop, labor costs are unlikely to decrease. We need to invest in innovation. Digitalization, AI applications, and industrialization must become more widespread. These will accelerate processes and make them more cost-efficient.
There’s frustration about taxation in construction and real estate. What’s your take?
Caroline Deiteren: Tax rules should be logical, simple, and non-distortionary, but that’s not always the case. For example, registration fees for a first and only home have been reduced from 3% to 2%. However, purchasing land still incurs a 12% registration fee and usually 21% VAT on construction. This encourages renovations of homes that would be better off demolished. At the same time, there’s not enough encouragement for useful renovations.
Contrary to criticism, the renovation obligation hasn’t burdened buyers—it’s actually reduced costs. Homes with an energy label F now sell for €145,000 less than those with label A. This effectively makes the obligation a “renovation discount,” leaving buyers with more budget to carry out necessary work.
What technological innovations will shape the sector in the coming years?
- Modular construction will open new opportunities. Many companies are already embracing it, and the productivity gains are enormous.
- Digitalization is another key trend. Flanders’ construction sector is already a frontrunner in Europe in terms of labor productivity and digitalization. Embuild aims to further advance this, including for smaller companies. Small investments in cameras, drones, or partial adoption of BIM can already yield spectacular results.
- Circular construction is also progressing, driven by increasing demand for detailed reporting from banks and larger companies. While the business models still need fine-tuning, there’s no turning back.
You’ve been Director-General of Embuild Flanders for six months now. What has positively surprised you?
Caroline Deiteren: I’ve been impressed by how hard our members work and their commitment to sustainability and innovation. It’s remarkable how many ideas construction companies bring forward and how they invest in turning these into tangible results.
What could be improved?
Caroline Deiteren: The construction sector—and by extension, real estate—hasn’t been top of mind in policymaking. While the challenges in manufacturing rightly get attention, the potential of the construction sector and its current crisis are being underestimated. That potential remains one of our strongest assets for the future.
Join the Conversation at Realty Talks!
Caroline Deiteren, Director-General of Embuild Vlaanderen, will be part of the Expert Panel at Realty Talks on February 5, 2025, at Brussels Expo. Don’t miss this opportunity to hear her insights and connect with industry leaders. Secure your spot today!
