Last year was not a good one for new construction. And there is no improvement in sight in the new year either. Some experts believe that the number of completions could even be below the 2023 level.
Economists and the construction industry are also assuming that the downward trend in residential construction will continue in the new year. The ifo Institute in Munich estimates that only 225,000 apartments could be completed in 2024. This would correspond to a decrease of 45,000 apartments compared to the previous year.
The most important industry associations, including the Main Association of the German Construction Industry and the Central Association of the German Construction Industry, also share this pessimistic assessment, although their respective forecast figures vary slightly.
Unattainable government goal?
The federal government’s political goal, on the other hand, is 400,000 new apartments per year. Many experts considered this number to be bold in better times, but it is now considered unattainable.
DZ Bank – the central institution of German cooperative banks – also assumes that the downward trend will continue to accelerate: As a result of the construction crisis, annual completions could fall to 200,000 apartments by 2025, according to the recently published forecast.
Ifo economist Ludwig Dorffmeister estimates the completion of new single- and two-family homes at 70,000 in 2024 – that would be a new all-German low after 2009. “Multi-family house construction, including dormitories, is holding up better with 125,000 newly built residential units.” According to Ifo estimates, around 25,000 more new apartments were built in multi-family houses in 2023.
Construction industry expects sales to collapse
“We are looking ahead to the coming year with concerns; residential construction in particular is clouding the outlook,” said Tim-Oliver Müller, general manager of the construction industry association. “In view of the significant drop in incoming orders, it is likely to deteriorate further in 2024 compared to the previous year.” The construction industry expects 250,000 apartments to be completed last year and a further decline in the new year.
According to managing director Felix Pakleppa, the Central Association of the Construction Industry – representing the interests of medium-sized construction companies – expects a drop in sales of minus 13 percent in the main construction industry and 235,000 new apartments in 2024.
The German Institute for Economic Research (DIW) was less pessimistic in a report for the federal government published in December, predicting only a comparatively small decline from 270,000 new apartments in 2023 to 265,000 this year.
Higher costs and loan interest
Hardly anyone expects housing construction to recover on its own in the next few years. “Without a fundamental change in housing construction policy with better funding and depreciation conditions for house builders and simpler construction specifications for the industry, even 200,000 apartments will no longer be feasible in 2025,” says construction industry general manager Pakleppa.
What are the reasons? Since 2020, both the actual construction costs and the loan interest rates have increased significantly. There is also uncertainty due to the federal funding programs and the current budget cuts by the traffic light coalition. Construction companies and experts also repeatedly mention excessive bureaucracy and the constant tightening of building regulations. Finding accommodation is very difficult for many people, especially in cities. Real estate prices fell last year, but rents continued to rise in many places.
Lars von Lackum, head of the real estate group LEG, justified the discontinuation of project development to the “Handelsblatt” by saying that “we are currently unable to build affordable new housing in Germany”. Pure construction costs of more than 4,000 euros and therefore new building rents of at least 18 to 20 euros per square meter “our customers cannot pay,” says von Lackum.
“Immense uncertainty in the market”
Three months after the housing construction summit in the Chancellery, all measures planned as an economic stimulus were stopped or put on hold, construction industry managing director Müller criticized the federal government. “There is also a lack of a clear perspective for the coming years, which is why the uncertainty on the market is immense.”
According to an ifo survey, the capacity utilization of building construction companies in December was only around 66 percent, seasonally adjusted. This was the lowest value since spring 2010.
Companies have to cut staff
The reduction in personnel in the construction industry is also a cause for concern. “It is already a bitter reality that every second residential construction company is suffering from a lack of orders,” said Müller. “Given this development, we will see a decline in employment in our industry in 2024 for the first time since 2008.”
Warnings have therefore been issued in the construction industry for some time. Once companies have cut employees, it will be more difficult to stimulate housing construction again due to reduced capacities alone. “Now it’s a matter of preventing a massive crash, which would be dramatic for the housing construction industry, but also for social cohesion,” demanded Müller, managing director of the construction industry.