Status: 01/31/2023 11:21 am
The situation on the housing market is getting worse. Germany’s largest real estate group Vonovia is putting all new construction projects planned for this year on hold. The reason is inflation and higher interest rates.
The real estate group Vonovia has stopped all new construction projects planned for 2023 due to rising construction costs and interest rates. “We will not have any new construction projects starting this year. Inflation and interest rates have risen enormously, and we cannot turn a blind eye to them,” said Vonovia board member Daniel Riedl of the “Westdeutsche Allgemeine Zeitung”.
“We would have had a significant number of construction starts this year, for example in Berlin or Dresden, and have postponed them – just like most property developers are currently doing,” Riedl told the newspaper. “We need stable framework conditions.”
However, Riedl emphasized that Vonovia does not want to withdraw from the new construction business in the long term. “We’re not starting any new construction this year. But we haven’t stopped the development work and are striving for our projects to obtain building permits and ultimately be ready to start when the general conditions are right again.”
Rent “completely unrealistic”
“For properties that we were previously able to offer for twelve euros per square meter without rent, we would now have to go towards 20 euros in order to recover our costs of 5,000 euros per square meter,” said Riedl. These rents are “completely unrealistic” in large parts of Germany. In order to cover the nationwide demand of 700,000 apartments, rents of eight or nine euros are also necessary. The federal government must intervene and provide clear funding guidelines, as well as promote the digitization of building applications.
In November, Vonovia boss Rolf Buch had already reduced the investments for the new building to around 350 million euros below the previous year’s values, referring to the increased costs.
Higher interest rates and more expensive materials
In view of higher interest rates and expensive materials, residential construction in Germany is faltering overall. Many builders hold back on projects or cancel them. The prices for the new construction of conventionally manufactured residential buildings increased by almost 17 percent in November. Federal Building Minister Klara Geywitz (SPD) has meanwhile admitted that the traffic light coalition will miss its target of 400,000 new apartments per year. With immigration, including refugees from Ukraine, the demand for housing is also increasing.
An alliance of tenants’ associations, building unions and social and industry associations had recently warned of an aggravation of the housing shortage. Around 700,000 apartments were missing in Germany, said Tenant Association President Lukas Siebenkotten. The general manager of the main association of the German construction industry, Tim-Oliver Müller, warned that new residential construction would be slowed down by the cost explosion.
No quick trend reversal to be expected
After declining orders last year, the German construction industry is not expecting a quick turnaround. “Since July, orders in residential construction have been falling, and with increasing speed,” said Felix Pakleppa, general manager of the Central Association of the German Construction Industry. According to the Federal Statistical Office, incoming orders in the main construction trades fell by 8.2 percent in the first eleven months of last year, adjusted for calendar and price changes, compared to the same period of the previous year.