Fall in building permits sparks concerns on affordable housing

Permits for single family homes plummet

The number of permits granted for new homes and conversions fell by 2.1% y-o-y in the first half of the year to 185,722 units, according to the German Construction Industry Federation, sparking concerns that Germany will, once again, fail to build enough new homes this year.

‘We fear that the sobering 2021 housing construction record of only 293,000 completed homes will continue this year due to new market realities,’ said Tim-Oliver Müller, CEO of the German Construction Industry Federation, citing the increasing cost of building materials coupled with higher interest rates.

In newly constructed residential buildings, the authorities approved 161,177 apartments in the first half of 2022, also a drop of 2.1% y-on-y, according to the Federal Statistical Office. However, single family home permits plummeted by 17% to 41,765. The number of apartments approved in two family homes rose slightly by 1.6% to 16,622. Multifamily homes saw an increase of 7.8% to 99,755 apartments.

‘The once again declining building permit figures for the first half of 2022 are alarming and approaching a dangerous tipping point,’ said Carolin Hegenbarth, federal managing director of the IVD. ‘Without more supply, easing rental markets will be elusive. Every housing project that is not initiated now will be missing from the order books of construction companies in the medium and long term. This trend threatens to be exacerbated by declining building permit numbers. The difficulty of rebuilding capacity once it has been cut back can already be seen in other sectors following the peak phases of the Corona pandemic.’

A ‘significant shortage’ in large parts of Germany

According to estimates by politicians and the construction industry, 350,000 to 400,000 apartments need to be completed in Germany each year to meet demand. The German government has also set itself the goal of ensuring more affordable housing. ‘Especially in social housing and affordable housing, there is a significant shortage in large parts of Germany,’ said IG Bau head Robert Feiger. ‘In concrete terms, it's a matter of advancing conversions and loft additions - with building laws that make this possible, not more difficult.’ Up to 1.9 million new apartments could be created just by converting offices that would no longer be needed due to home offices.

However, it’s not just the residential sector feeling the strain. As Russell Jordan, CEO of self-storage developer Space Plus, told REFIRE last month: ‘There’s a big gap between closing a property and getting permits – it can take a year.’

Subsequently, cities are being weighed down by their enormous construction backlogs. According to the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), there is a backlog of 846,000 apartments in Germany that have been approved but not yet been built, including in Berlin (65,800), Munich (36,600) and Hamburg (26,500). These are followed by Frankfurt (15,800) and Leipzig (10,500) and the Hannover region (9,400). Almost a quarter of the construction backlog - 205,000 apartments - was accounted for by the 14 German cities with more than 500,000 inhabitants. In total, 69.5% of the construction backlog – or around 588,300 apartments - is in urban areas, with just 30.5% - around 258,100 apartments - in rural areas as of the end of last year.

And construction is taking longer. In 2015, multi-storey homes used to take around 23 months to build – today, they take 28 months. WeberHaus in Rheinau-Linx in Baden-Württemberg has been marketing properties ‘for about six weeks at 30% below the previous year's figures’, according to its marketing manager Klaus-Dieter Schwendemann, who says that interest rates and construction costs are putting the brakes on the market. According to Mike-Oliver Schindler, regional head of sales for Lower Saxony and Northern Hesse at developer Heinz von Heiden, customers are finding it increasingly difficult to get financing. In addition. The company’s turnkey houses cost around 20% more now than a year ago. Even so, the margins are very low due to the sharp rise in the price of materials and the shortage of craftsmen, he said.