New low estimate of 150,000 housing completions for 2024

Relationships between Germany's building and construction associations and official government authorities have been souring continuously throughout the ongoing development crisis. The latest figures from Germany's Federal Statistics Office (Destatis) will have done little to lighten the mood.

Last year 260,100 new homes were granted planning permission, the lowest level since 2012 and a decline of 26.6% or 94,100 homes compared to 2022. The number of building permits is considered an early indicator for the development of actual construction activity.

Notable in the latest figures is the slump in detached and semi-detached homes, which are mainly built by private individuals (as against multi-family homes or apartment blocks). Here, the number of building permits issued fell by 39.1% to 47,600 single-family homes and by 48.3% to 14,300 two-family homes. Around two thirds of building applications were for apartment blocks. Here, Destatis reports a decline of a good quarter to 142,600 approved dwellings. Destatis cites increased costs for building materials and worsening financing conditions as reasons for the decline in construction projects in 2023.

Construction Minister Geywitz under attack

The Building and Construction Minister, Klara Geywitz, has been coming under increasing attack for her attempts to put a positive gloss on what is developing into a disastrous situation for German housing. She has described the ongoing wave of insolvencies in the construction industry as a "normal market shakeout", and that a close look at the figures for 2023 would reveal that building permits have been increasingly "bottoming out" since late summer. There is altogether too much pessimism in the industry, she declaimed, and was convinced that her "support programmes and measures" as well as the high construction backlog, more robust incoming orders and a more stable financial environment would stabilise future construction activity.

Chancellor Olaf Scholz is also facing attacks from the various housing and building associations for his dismissal of the growing crisis as being put down to "psychological problems" and "miscalculations" by housing developers.

Trade and industry associations are getting increasingly desperate. Among their demands are the immediate introduction of depreciation regulation, providing for annually decreasing depreciation amounts, in short: a declining balance depreciation for wear and tear (AfA) for new construction.

The German Property Federation ZIA is warning loudly of the yawning gap opening up between housing supply and demand. Among its most immediate demands are the introduction of tax incentives for developers to pick up building again. A temporary waiver of land transfer tax and municipal levies on housing construction would also be steps that would "bring about fundamental change", says ZIA president Dr. Andreas Mattner.

But he had harsh words for the government. "We are no longer competitive in Germany, even in construction," he criticised. The industry, which accounts for 19% of total economic output, is in "a more critical state than ever before in post-war history".

Government is 'denying reality'

In view of the latest Destatis figures, the Federal Association of German Housing and Property Companies (GdW) is openly accusing the federal government of "denying reality" and "falsely apportioning blame". The major social problem of the housing shortage cannot be solved by an alleged construction backlog that simply needs to be cleared. The reality is "a paralysing combination of persistently high construction costs and interest rates coupled with a lack of sufficient and usable funding."

"However, if the most important political decision-makers in our country are fantasising about psychological problems with regard to the rise in interest rates and about a normal market shakeout in the event of the insolvency of residential construction companies, then this is not only an absurd cover-up tactic - it is also damaging to the German economy and, in view of the ongoing housing shortage, to social cohesion in our country," said the GdW.

Presentation of Spring Report

At the recent presentation of the so-called Frühjahrsgutachten (Spring Report) - the traditional "State-of-the-Industry" report presented by a committee of "Wise Men", delegates at the Quo Vadis early-year real estate gathering heard that the market is heading towards completing a mere 150,000 housing units in 2024 - a new low estimate. The Report was handed over officially by the ZIA to Building Minister, Klara Geywitz.

There is currently a shortfall of 600,000 apartments in Germany, with the gap set to grow to 720,000 in the coming year and a shortfall of 830,000 units expected by 2027. "With the current levels of interest rates, building land prices, construction costs and rents, the construction of new apartments is simply not a paying proposition," the experts said. The Ifo Institute also expects the number of new homes built each year to fall by more than a third between 2023 and 2026.

One of the five "Wise Men", Dr. Harald Simons, also pulled no punches in his presentation. "New housing construction is in a deep crisis, and the crisis is deeper than the figures on completions and building permits show so far," he summarised.

With the rise in interest rates in the second quarter of 2022, ALL residential construction projects have effectively become uneconomical, he said. The result: a virtual halt to residential construction, the dramatic nature of which is currently only partially reflected in the official data on residential construction. "The current parameters of building costs, building land prices, rents and interest rates simply do not match," he said. At current interest rates, this means "that either rents must rise or construction and land costs must fall".