leszekglasner/Envato
The figures released by Germany's Federal Statistics Office show that approvals for residential construction fell by a further 21% over the first half of the year, casting a further shadow over hopes of an imminent recovery in housebuilding and some prospective respite for Germany's growing housing shortage.
Approvals for the construction of flats collapsed in the first half of the year. From January to June, they fell by 21.1% compared to the same month last year, or by 28,500 to 106,700, according to the statistical experts. the trend has been pointing consistently downward recently. In June alone, there was a decline of 19.0% to 17,600 apartment permits issued. Measured against June 2022, this was down a full 42.1%. The major hurdles are high financing and construction costs, with industry association attributing part of the blame to too much bureaucracy.
‘The current level of building permits corresponds to just over 200,000 newly built apartment units per year,’ said Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Economic Research (IMK). ‘This means that German housing construction will continue to be in crisis.’
The decline in building permits in the first six months of the year was most pronounced for new single-family homes: Here there was a slump of 30.9% to 18,600, while a drop of 14.9 per cent to 6,600 was reported for two-family houses. The number of building commitments for multi-family houses - the largest building type in terms of numbers - also fell significantly, dropping by 20.8% to 57,300 flats.
“Quo Vadis Wohnungsbau?”
In a special discussion round organised by communications agency PB3C, entitled "Quo Vadis Wohnungsbau", and attended by REFIRE, participants from empirica regio, FOX Real Estate, Swiss Life Asset Managers and DRIVEN Living discussed the current situation on the residential project development market.
Jan Grade, the managing director of research group empirica regio, emphasized how there is currently an imbalance between the production costs for new housing, the financing conditions and the purchasing power of private households.
"The slump in new construction will only become truly apparent in the completion figures for new residential space from 2024 or 2025 and for at least another two to three years after that. The expectations of property sellers, local authorities and also buyers or tenants for new housing in terms of sales price, size, quality, environment, infrastructure and sustainability are simply not realistic given the current conditions. In the current market environment, these demands mean that the only housing units that can be built are those that many people can no longer afford. So if it becomes apparent that there are not enough buyers, the units will simply not be built."
Stefan Spilker, managing director of Hamburg-based investment company FOX Real Estate, said many owners were holding back on sales, with current prices being unappealingly low for them at the moment. Their wait-and-see approach was also leading to less being built.
"Converting office space that is no longer marketable into residential space is very interesting in theory. In practice, however, the price expectations of the previous office owners are often too high." He added, "EU directives relevant to property - especially with regard to energy classes - are usually interpreted very ambitiously in Germany. This leads to legislation that makes living space more expensive than necessary. The Netherlands and the Scandinavian countries show that there is another way."
Lack of faith in reliability of developers
Anett Barsch, board member and head of project development at Swiss Life Asset Managers Germany, talked about the lack of confidence in the financial health of many project developers. "We are currently experiencing major difficulties in the individual sale of apartments - especially in the pre-sales phase of new projects. This is because many people have lost confidence in the reliability of project developers as a whole. But if pre-sales don't work, no more new projects will be started and there will be even fewer apartments built."
"If policymakers really do see solving the housing shortage as a priority, they should act accordingly. Take building type E, for example: although I am allowed to create more affordable living space in accordance with building law, I run the risk of being sued under civil law by the future user due to a formulation that is not legally secure."
The parking space requirement that applies in many places drives up the cost of housing - especially if the parking spaces can only be created in expensive underground car parks. The parking space obligation places a disproportionate burden on smaller housing units - because the revenue per parking space does not increase with the size of the apartment. A positive example is Hamburg, where there is no longer a parking space obligation when creating new residential space."
Niels Berl, the managing partner of Berlin-headquartered developer Driven Living, agreed that there was still currently a mismatch between buyers' and sellers' price expectations. "We are currently reviewing many property sales offers. The price that is realistic for us as buyers based on current market developments is often lower than the loan amount. Ultimately, you then have to negotiate less with the seller and more with the banks. In extreme cases, the banks‘ hope of avoiding losses by waiting for better sales prices means that existing sites cannot be built on for a long time.
"Assuming, for example, construction costs of around 3,000 euros per square metre and a sales factor (in the context of a bulk sale of the flats created to an investor) of 20, the subsequent rent at market prices can hardly be less than €12.50 euros per square metre. And that's even if you were given the property as a gift."
Berl gave an example of how easily projects can fail. "We recently examined a new project in a town in the outskirts of a large metropolis. The plot was located in the city centre and right next to the local train station - yet the city insisted on the creation of car parking spaces and corresponding compensation payments. This ultimately caused the project to fail, because with these conditions it simply wasn't worth it for us."
