The number of building permits fell in March more than it had in 16 years. Reasons are the increased interest rates and high construction costs. The construction industry warns of the consequences.
High inflation, rising interest rates: The crisis in German housing construction continues to worsen. The number of building permits in March experienced its sharpest decline in 16 years. Only 24,500 apartments were approved – that’s 29.6 percent or 10,300 fewer than a year earlier, as reported by the Federal Statistical Office.
The last major drop was in March 2007, when a drop of 46.5 percent was recorded. The number has been falling continuously since May 2022, with the minus since October 2022 being more than ten percent.
Main cause: High construction costs and Financing Conditions
“High costs for building materials and increasingly poor financing conditions are likely to have contributed to the decline in construction projects,” the statisticians explained the downward trend. Because of the interest rate hikes by the European Central Bank (ECB) in the fight against high inflation, construction loans have become noticeably more expensive.
The shortage of skilled workers is also exacerbating the problem. For these reasons, many builders held back with projects or canceled them – from private house builders to large investors.
A total of 68,700 permits for apartments were issued from January to March. That was 25.7 percent less than in the same period last year. The figures include commitments for apartments in new buildings as well as for new apartments in existing buildings.
Sharp drop in arrivals and semi-detached houses
Two-family houses were particularly hard hit by the housing crisis in March, with a slump of 51.9 percent to 4100 approved apartments. In the case of single-family houses, there was a decline of 31.1 percent to 14,300 building commitments.
“Even in the numerically strongest type of building, the multi-family houses, the number of approved apartments fell significantly,” emphasized the statisticians. There was a minus of 25.2 percent to 37,200.
Traffic light coalition misses new building target
According to industry estimates, at best 250,000 apartments will be completed this year. This means that the new construction target of the traffic light coalition of 400,000 apartments per year will also be missed in 2023, as Federal Building Minister Klara Geywitz has already conceded.
In view of the misery, the real estate industry insists on more commitment from the public sector. The Central Real Estate Committee (ZIA) advocates a federal loan program with two percent interest. “If the housing yields are two to three percent, but the loan interest is four percent, nobody can build,” said ZIA President Andreas Mattner. “Therefore, we have to radically change the framework conditions.”
The general manager of the Central Association of the German Construction Industry, Felix Pakleppa, warned as early as March: “If we don’t change course soon, the housing market crisis will continue to grow.” According to Pakleppa, builders and investors are canceling more and more projects because of the high construction costs and higher interest rates.