Construction is booming throughout Europe, but in no country is this sector thriving like in Albania.
In a recent report on housing, Eurostat measured the size of the construction sector for the entire Europe. This measurement is done through the gross value added (GVA) generated by this economic activity as a part of the total GVA (production in the economy excluding taxes).
According to Eurostat, for the European Union, this percentage was between 5 and 6% in the period 2010-2022. The indicator was highest at 5.8% in 2010, decreasing to 5.1% in 2014-2017, and then increasing again to reach 5.5% in 2020, 5.4% in 2021, and 5.5% in 2022.
Among member states, the share of GVA in construction fell in 14 member states between 2010 and 2022, with the largest decrease noted in Spain, Bulgaria, and Cyprus. Among the member states with an increasing weight in the construction sector during this period, Hungary, Germany, and Lithuania showed the highest growth.
In 2022, the member states with the highest percentages were Austria (7.3%), Finland, and Romania (both 7.0%), according to Eurostat.
The indicator is much higher for Albania. According to Eurostat, in 2022, construction in Albania accounted for 11.1% of the gross value added, the highest in Europe and twice as high as the European Union average.
Albania may be a developing country and is facing a strong demographic transition, but in other countries in the region, where such a cycle has already occurred, construction has a very low weight in the economy. For example, North Macedonia had this indicator at 6.2% of GVA in 2022, Montenegro, which is a country oriented towards tourism, at 4.8% of GVA, Serbia at 6.6%, Bosnia and Herzegovina at 5.2%.
The only country “competing” with Albania is Kosovo, which is showing the same trend with high construction rates in the capital and surrounding areas. Construction in Kosovo accounted for 10.7% of the gross value added in 2022.
The indicator for Albania in 2022 was the highest since 2014 when it dropped to 9.9% of GVA, from almost 15% that had peaked in 2010. As a cyclical sector, construction started to decline after the 1990s, as a result of internal population movements, where a considerable number of families moved to the central area. However, after 2014, it returned to growth, mainly led by construction in Tirana and tourist areas.
The trend is expected to continue, especially in Tirana, the capital. In 2022, a record number of permits for residential construction in Tirana were issued, around 1.8 million square meters, according to INSTAT.
In 2023, the Tirana municipality estimates in the project budget that it expects to collect 7 billion lek from the Infrastructure Impact Tax from new constructions, up from the initial plan of 5.5 billion lek. The municipality says that the revenue realization from this tax exceeds the approved plan as a result of applications beyond forecasts. In the period 2024-2026, around 6.5 billion lek per year is expected to be collected from this tax, in a signal that the municipality anticipates continuing the issuance of construction permits vigorously.
This trend comes at a time when the population trend is towards shrinkage, due to the ongoing high emigration and natural aging of the population. In 2022, the population increase in Tirana was the lowest in history, with less than 6,000 people, down from about 20,000 some years ago.
Foreigners have become an important factor in non-residential property purchases, but their pace is expected to decrease due to the continuous rise in prices, which is narrowing the gap with other countries in the region, such as Croatia or Montenegro. Foreign investments in non-residential properties for the 9-month period of 2023 reached a value of 222 million euros, according to the Bank of Albania, with a slight decrease of 1.3% compared to the same period last year, unlike 2022 when the growth was two-digit.