Number of German building permits sinks in first half

New figures released this week by German’s Statistische Bundesamt show that the number of building permits issued for new apartments sunk in the first half of the year to 164,600, down 2.3% on the same period last year. Permits issued for dual-family homes fell by 4.7%, the biggest fall for any housing category, while permits issued for multi-family housing units dropped by 3.2%. Single family homes saw a fall of only 0.1% in the number of permits issued.

According to Andreas Ibel, the president of the house-owners’ association Bundesverband Freier Immobilien- und Wohnungsunternehmen, “The market for building land, the bottleneck for issuing more building permits, has practically dried up. Local councils are now going to have to speed up the zoning of new building land, otherwise new building will grind to a halt.”

Public financing bank KfW Kredit für Wiederaufbau said it was nonetheless optimistic that the number of new houses built would continue to go in a positive direction, despite falling permit numbers. Still, KfW economist Martin Müller said that, particularly in the larger and more expensive cities, a lot more had to be done to fight the housing shortage and the ongoing pressure on tenants.

Of course, what really counts is not the number of permits issued, but the actual number of completions, as many projects with planning permission don’t actually get built. KfW says there is a surplus of 600,000 apartments with planning permission over those being built. In 2018 more housing units were completed (285,900) than in any year since 2002, although that still fell short of the government target of 1.5 million new units by end-2012, or 375,000 a year. A target that looks increasingly unrealistic.

In an article earlier this month in the Frankfurter Allgemeine Zeitung, Dr. Günter Vornholz, professor of real estate economics at the EBZ Business School in Bochum and latterly of Deutsche Hypothekenbank, addressed the issue of the housing shortage in Germany’s bigger cities. In particular, he sees the fall in the number of permits issued as not being essentially relevant to the shortage – rather, supply-side restrictions are the main culprit, in his view.

As the conventional argument goes, the shortage of zoned building land raises the price of this building land and makes building less and less profitable for developers. Additionally, the backlog of building permits stems from the shortage of qualified staff among the issuing authorities, along with unnecessary bureaucratic red tape.

The statistics don’t support these arguments, says Prof. Vornholz. For example, the ‘building overhang’, or number of issued but not acted-upon building permits has been rising for years. In 2017 these numbered more than 650,000 and has practically doubled over the last ten years, while in the seven biggest German cities the number of permits issued has greatly exceeded the number of completed units. In fact, the share of completions as a percentage of permits issued in the big cities in each year is well below the average for the country as a whole. So, if all the permits were converted into completions, there would be no housing shortage, as the growth in apartments would have exceeded the growth in the number of households.

Prof. Vornholz claims there are two main reasons for the housing shortage in the big urban areas. Firstly, there is undercapacity in the construction sector – developers are working flat out with the available skilled labour on existing projects, with a growth of 20% in workers employed over the last ten years. More permits wouldn’t resolve the labour shortage, he says.

Secondly, speculation by landowners is leading to those landowners preferring to trade their land rather than build upon it, as building land has risen since 2010 by 50% more than the price of housing. Since 2005, turnover in building land with planning permission has tripled in the big cities. Speculators have profited greatly from their land becoming more and more expensive, and it has proved more lucrative to hold off on building and instead to hoard the land, with a view to selling it at a higher price later.