A building under construction
The near-term future for German housing took another blow with the latest figures released by the Federal Statistics Office on April's tally of building permits issued.
The number of new permits issued was for 21,200 apartments, a full 9,900 (or 31.9%) less than in the same month last year. The monthly number has been continually falling since May 2022, and is now at its lowest level since March 2006. For the four months of January to April, a total of 89,000 permits for apartments were issued, down 27.3% on last year. High costs for building materials and a deteriorating financing environment were blamed for the downward trend.
Building permits for single-family homes also fell, by 33.5% to 18,300, while the largest category type - multi-family housing - saw approvals fall 27.1% to 48,200.
The German Construction Industry Federation (HDB) expects at most 250,000 apartments to be completed this year. That would be around 45,000 fewer than last year and a long way from the German government's target of 400,000 new homes a year. "Without major changes in the framework conditions, the result is likely to be even worse in 2024," the association warned.
Think-tank Ifo Institute expects completions this year of 245,000 apartment units and for next year it sees the number of new-build apartments at only 210,000 units, only 200,000 pencilled in for 2025 - half the government target. With much of the construction industry now having ground to a halt, Ifo's building and construction expert Ludwig Dorffmeister said the primary cause was the jump in the cost of financing and construction services. "At the same time, the federal government has drastically cut back on new construction subsidies and once again tightened the standards for new construction at the beginning of 2023," he said.
Also cited in several media is the Federal Association of Free Real Estate and Housing Companies (BFW), which referred to the "drastic decline" in building permits. BFW President Dirk Salewski said, "Not approved today means not built in the coming years. Where are the missing affordable homes supposed to come from? This has many negative social effects, also because the housing shortage continues to grow unabated." Joining the arguments of many project developers, he said, in order to boost housing construction, what's needed are a) government guarantees to support families with normal incomes in buying property, b) adequate subsidy programs, and c) a suspension of the real estate transfer tax (Grunderwerbsteuer) on the first purchase of real estate.
What building IS going on are projects that are now too advanced to cancel, and construction projects in the high-priced segments where customers are less price-sensitive. Still, order backlogs will be drying up in the course of the year, leading to ever-emptier pipelines. The Ifo survey put the proportion of construction companies facing cancellations in May at17.8%, up from 14.7% in April. That spells real trouble for the supply of new housing ahead, and further upward pressure on rents.
