The decline in building permits even accelerated in July. The construction industry is sounding the alarm ahead of the new housing summit next week. Are government funding programs ineffective?
Shortly before the federal government’s housing summit, new gloomy figures are coming from the construction industry. As the Federal Statistical Office announced, the construction of 21,000 apartments was approved in July 2023. This corresponds to a drop of 31.5 percent or 9,600 compared to the previous year. In the first seven months of the year, the number fell by 27.8 percent compared to the same period last year.
The two main reasons for the negative trend have been around for some time. “Increasing construction costs and increasingly poor financing conditions are likely to have contributed to the decline in construction projects,” said the statisticians.
“Sad record”
The construction industry is alarmed. “The free fall in residential building permits continues unabated,” said the managing director of the Main Association of the German Construction Industry, Tom-Oliver Müller. “The tenth consecutive month with a double-digit decline in approvals is a sad record.”
In the first seven months of the year, only 156,200 apartments were approved. The federal government has actually set itself the goal of 400,000 apartments annually in order to meet the growing demand, especially in large cities. However, Federal Construction Minister Klara Geywitz (SPD), citing the difficult environment, has already admitted that she will clearly miss this goal.
Interest rate hikes could make the situation worse
The housing construction summit next Monday in the Chancellery is expected to provide new impetus. The construction and real estate industry is calling for a reduction in real estate transfer tax, less bureaucracy and the discounted release of public land for the rental housing market. If the federal government “does not resolutely turn things around, the housing shortage in Germany will be cemented,” warned association leader Müller.
After the European Central Bank (ECB) raised interest rates again last week, the construction and real estate industry warned of a further escalation. “The increase in interest rates will further fuel the recession in construction, as financing costs rise and construction becomes more expensive,” said Müller.
“No clear effect yet” from KfW funding
Since March 2023, there have been new funding programs from the federally owned Kreditanstalt für Wiederaufbau (KfW) for climate-friendly new buildings. “There is still no clear effect of these measures on the number of approvals,” said the statistics office.
From March to July, the decline in building permits even accelerated, according to the Federal Office. Approvals for single-family homes fell by 36.5 percent to 30,800 in the first seven months. The number of approvals for multi-family homes also fell significantly, by 27.5 percent to 83,600. There was only an increase in residential homes.