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Germany's construction industry remains in deep distress. The latest study from consultants PwC confirms what industry figures have been warning for months: the sector is paralysed, with no clear path to recovery. Building permits have plummeted, costs remain high, and developers are struggling to adapt to changing conditions. Despite lower interest rates since mid-2024, there is little optimism that a turnaround is imminent.
Building permits fell by 19% in 2024, with just 193,700 approvals—less than half the government’s (now-abandoned) original 400,000-unit target. Single-family homes saw a 22.1% decline, multi-family buildings 22.4%, and two-family homes 12.7%. This crisis, fuelled by high interest rates, soaring material costs, and regulatory barriers, is exacerbating the country’s housing shortage. The mismatch between supply and demand continues to push rents higher, particularly in smaller cities and rural areas.
Developers are trapped in a cycle of uncertainty. The PwC report reveals that 69% of surveyed construction companies experienced revenue declines and project delays in 2024. While firms acknowledge the potential of digitalisation to improve efficiency and reduce costs, implementation remains weak. Rebekka Berbner of PwC, the author of the study, notes that while interest in AI, visualisation tools, and digital modelling has grown, actual deployment lags significantly. ‘Every year, the gap between potential and capability widens,’ she said. The demand for digital solutions in construction tenders has halved since 2021, falling to just 17%.
Integration of AI in construction remains a laggard
This reluctance contrasts with broader trends in the real estate industry, where AI adoption is accelerating. According to a survey by IT service provider INTREAL Solutions, 35% of real estate firms now use AI, with projections of 90% adoption within two years. However, AI integration remains sluggish in construction, with firms citing a lack of suitable applications and compatibility issues with existing systems. While AI-driven tools for contract management and price analysis are becoming standard in real estate, construction companies have yet to embrace them at scale. Without decisive investment, the industry risks falling further behind in technological progress.
Labour shortages continue to squeeze the industry, with 81% of companies citing difficulty in recruiting skilled workers. At the same time, 70% expect they will need to rethink their business models in the coming years, yet many lack the financial and strategic capacity to do so. The pressure to cut costs is immense, yet bureaucracy remains a major roadblock. ‘The situation is dramatic. Housing construction must take precedence over other concerns,’ says Axel Gedaschko, President of the German Housing Association.
The contradiction between regulation and market needs is stark. Seventy percent of firms want clearer sustainability rules, yet 68% cite excessive bureaucracy as their biggest challenge. The industry is calling for structural reforms, streamlined permitting processes, and regulatory flexibility. BFW President Dirk Salewski has been particularly vocal: ‘We need a welcoming culture for construction cranes. The government must act boldly.’
Further 7,000 job losses expected in 2025
The situation is now impacting employment. The German Construction Confederation (ZDB) calculates that 15,000 jobs were lost in 2024, with another 7,000 cuts expected in 2025, reducing the industry workforce to 905,000. ‘Five years of real revenue declines are reflected here,’ says ZDB President Wolfgang Schubert-Raab. Insolvencies are also increasing as firms struggle to stay afloat. Residential construction remains weak, with completions expected to fall from 294,000 in 2023 to 250,000–255,000 in 2024 when the latest figures are compiled, and down to just 220,000 in 2025.
Lobby groups continue to push for policy changes, particularly around reducing construction costs and regulatory hurdles. One potential lifeline is ‘Gebäudetyp E’, a more flexible building category aimed at lowering costs without compromising quality. ‘This has nothing to do with building cheaply,’ says Schubert-Raab. ‘But it allows construction according to realistic budgets rather than enforcing the gold standard that few can afford.’
Falling interest rates provide a glimmer of hope. By late 2024, mortgage rates had dropped below 3%, with analysts predicting further easing. Professor Michael Voigtländer of the German Economic Institute (IW Köln) believes this could unlock financing for some projects. Yet the broader outlook remains grim. Developers lack confidence, construction costs are still elevated, and regulatory uncertainty persists.
The industry’s survival depends on decisive action. Fast-tracking approvals, expanding ‘Gebäudetyp E,’ and providing targeted financial incentives would help unfreeze stalled projects. Without these measures, developers will shelve further plans, and the housing shortage will spiral into a long-term structural deficit.