The Central Real Estate Committee warns of a “dramatic slump” in housing construction. The so-called real estate experts expect that there will be a shortage of 830,000 apartments in Germany in just three years.
These are dark times for everyone who wants to build or is simply looking for an apartment: This year there will be a shortage of around 600,000 apartments in Germany, the Central Real Estate Committee (ZIA) calculates in its new spring report. This number will rise to 720,000 by next year and even to 830,000 by 2027. ZIA President Andreas Mattner warned that the country was “at risk of heading towards a social debacle.”
According to the ZIA, construction has become “factually impossible”.
The so-called real estate wise men warn of a “dramatic drop in residential completions” expected to reach 150,000 per year. The federal government’s target of 400,000 is now a long way off. According to estimates, by 2023 this mark will have already been significantly missed at around 270,000.
The industry, which contributes 19 percent of the gross domestic product, is “as bad and critical as never in post-war history,” said Mattner in Berlin. Building has now become “factually impossible” and Germany is no longer competitive in this area. New building projects would only break even with an average rent of 21 euros. “Anyone who builds today will go bankrupt,” said the ZIA President.
Wave of cancellations in housing construction
What are the reasons for this historic crisis in construction? The ZIA primarily points to increased construction costs, excessive government taxes and high interest rates – many construction projects are simply “no longer profitable”. Last year, 20.7 percent of companies reported canceled projects – that was a new high.
This wave of cancellations in residential construction could “continue, as the general conditions for construction investments are likely to remain unfavorable for the time being,” warned former economist Lars Feld, who was responsible for the chapter on overall economic development in the ZIA spring report.
Falling building interest rates – with KfW money?
After all, according to economists, there is a prospect that the European Central Bank (ECB) will cut its key interest rate several times this year in view of declining inflation. This means that building interest rates are also likely to fall, making financing cheaper. Investors on the financial market had recently withdrawn their speculation about a rapid first interest rate cut by the ECB.
The leading association of the real estate industry sees politicians as having a duty and is calling on the federal and state governments to take quick countermeasures. Among other things, the ZIA suggests using state money to reduce building interest rates.
The experts have in mind a KfW funding program that reduces market interest rates to two percent – with a funding amount of three billion euros, that would bring 100,000 additional apartments. “Nine billion euros would bring about an important turnaround with 300,000 extra apartments,” said the ZIA. Through sales tax and saved costs for unemployment, the state would at the same time “recoup” 3.3 billion euros.
Declining depreciation required for housing construction
The industry also believes that a temporary waiver of real estate transfer tax makes sense. The association presents the tax incentives desired by the federal government and the Bundestag as indispensable. In order to stabilize the construction industry, the federal government is planning declining depreciation for residential construction. Five percent of the acquisition and production costs should be able to be written off for tax purposes over six years.
This is part of the so-called Growth Opportunities Act, which is met with resistance in the Federal Council. ZIA boss Mattner appealed to the states to approve the law in the mediation committee tomorrow – the law should not be linked to other irrelevant questions.
The situation in German housing construction is particularly precarious
Current forecasts from the Euroconstruct research group, of which the Munich Ifo Institute is also a member, also show that the situation in Germany is particularly dramatic. According to this, the number of housing completions in Europe will decline by 13 percent by 2026 compared to 2023. A decline of 35 percent is expected for Germany.
“Especially because of the sharp increase in construction and financing costs, new housing construction is often no longer possible in Germany. Politicians have not yet significantly improved the framework conditions,” criticized ifo construction expert Ludwig Dorffmeister.
The German Institute for Economic Research (DIW) recently came to the conclusion that housing construction in Germany will shrink by 5.4 percent this year. According to the study authors, only around 265,000 new apartments will be built in 2024.