According to the Ifo Institute, a fifth of German housing construction companies are already reporting canceled projects. High interest rates and sharply increased costs mean that they can no longer be financed.
The crisis in German housing construction continues to worsen. In August, 20.7 percent of companies reported canceled projects, after 18.9 percent in the previous month. This emerges from the surveys by the ifo Institute. “Cancellations in residential construction are piling up to a new high. We have not observed anything comparable since the survey began in 1991. The uncertainty in the market is huge,” says Klaus Wohlrabe, head of the ifo surveys.
The reason is the rapidly rising construction costs and the now much higher interest rates. Therefore, “many projects that were still profitable at the beginning of 2022 are currently no longer feasible,” explains Wohlrabe. “The reduction in funding due to the stricter energy saving requirements is also putting a strain on the builders’ calculations.”
Some construction companies in distress
Meanwhile, construction companies are increasingly in trouble. Although some companies still have well-filled order books, according to the ifo survey, 44.2 percent of participants are already reporting a lack of orders – after 40.3 percent in July. At the same time last year, the proportion was only 13.8 percent.
“Some companies are already up to their necks in water. Currently, 11.9 percent of housing construction companies are reporting financing difficulties. This is the highest figure in over 30 years,” says Wohlrabe.
The majority of companies fear further declines in business over the next six months. At minus 60.1 points, business expectations are at an exceptionally weak level.
New recession expected
The construction crisis is one reason why leading economic research institutes have a negative outlook on the economy. The ifo Institute, for example, expects gross domestic product to shrink by 0.4 percent in 2023. The EU Commission also assumes that Germany will fall into recession again this year.
Housing construction remains an economic problem child, said the President of the German Savings Banks and Giro Association (DSGV), Helmut Schleweis. In the first six months of this year, German savings banks were particularly affected by the significant decline in commercial residential real estate financing. “These have fallen by more than half compared to the first half of 2022,” says Schleweis.
The traffic light government had set a target of at least 400,000 new apartments for this year. But this mark “is not achievable in the next two years,” said the Sparkasse president. The coalition must, for example, standardize building law and reduce bureaucracy, which could reduce construction costs.