Sentiment among Germany's residential builders was lower than it has ever been in January, according to the monthly survey of Munich-based Ifo Institute.
The institute's proprietary barometer for measuring the business climate fell in January from minus 56.9 to minus 59.0 - the lowest value ever recorded. There's also little improvement in sight, with the outlook for the coming months also falling from minus 64.7 to minus 68.9 points. Not only is there a lack of new orders, but ongoing projects continue to be cancelled.
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Dr. Klaus Wohlrabe, Head of Surveys, ifo Institute
Klaus Wohlrabe, head of the Ifo Institute's surveys, says, it's still too early to talk of a turnaround in residential building, with the broader environment still largely unchanged. "High interest rates and construction costs are not making it any easier for developers", he said. The widely-expected fall in interest rates is still several months away, perhaps longer, as investors have been recently scaling back their speculation about a rapid first interest rate cut by the ECB.
Recent figures released by the Federal Statistics Office show the orders for residential construction trailing the overall order level for construction of all type, including infrastructure, by a margin. Surveyed were companies nationwide with 20 or more employees. According to Felix Pakleppa, boss of the German Construction Industry Association (ZDB), in response to the data, "We have been going backwards here for 19 months". Compared to the year before, the industry was showing a deficit of 83,000 apartment units by November 2023 - a decline of around a third overall, primarily due to inflation and high financing costs.
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Felix Pakleppa, CEO, German Construction Industry Association (ZDB)
Pakleppa said that additional funding for multi-family house-building, which was made available in government budget planning for 2024 offered a small glimmer of hope. But it still doesn't offer enough for potential owner-occupiers, who make up the bulk of buyers for new residential building. And the order backlog for this year is not strong enough to enable many construction companies to hold on to their staff. In nominal terms alone, orders in residential construction are 15% below the previous year's level, in real terms by more than 21%. The actual number of apartments likely to be built this year in Germany is under 200,000, less than half of the government's stated target, now (thankfully) abandoned.
This will accentuate a trend that nationwide broker group Von Poll highlighted in a recent report on new-build construction. The report shows how the share of new building in the overall housing stock has been declining in all Germany's federal states since 2021 - except for Mecklenburg-Western Pomerania. Nationwide the proportion of so-called new-build apartments has fallen from 18.2% to 16.5% at the most recent count.
There are large regional differences. With a share of 24.1%, Saxony has the most new-build flats. Bremen, by contrast, is far behind with a share of just 8.3% . The greatest reduction in supply can be seen in Thuringia: At 22.9% per cent, the proportion of new-build flats there is still relatively high - but it has fallen by 15 percentage points within three years. According to the researchers at Von Poll, this decline was programmed: the state of Thuringia had initiated new subsidy programmes. These temporarily boosted new construction activity in 2021 and 2022, before subsequently falling back again. A clear case of cause and effect.
