Germany will see a drastic decline in residential construction, according to research by the Munich-based Ifo Institute.
Around 245,000 apartments will be completed in new residential buildings in 2023, with another 210,000 to follow next year but only around 175,000 in 2025.
Together with the other completions, only about 200,000 new housing units will be built in 2025, half of the German government’s target of 400,000.
The main factors for the decline are the huge increase in the cost of financing and construction services, as well as the German government’s decision to drastically cut back on subsidies and again tighten the standards for new construction.
Construction projects are still taking place in the high-price segment, for whose customers the increased costs are only a minor issue.
Ifo construction expert, Ludwig Dorffmeister, says: ‘For many months now, the vast majority of developers have not been initiating any new projects. The orders currently on their books are for projects that are already too far advanced to cancel. The extent to which changes to the conditions in individual Länder and municipalities will have an impact remains to be seen.’
The pipeline will not empty all that quickly as it will take some time to complete projects, while order backlogs are likely to significantly drop during 2023.
In May, the percentage of cancellations in residential construction rose to 17.8%, up from 14.7% in April.
Meanwhile, 21,200 building permits for apartments were issued in April 2023, down by 32% on the same month last year, reported the Federal Statistical Office.
This was again the sharpest year-on-year decline since March 2007 (-46.5% compared with March 2006) after the number of building permits for apartments in March 2023 had already fallen by 29.6% compared with March 2022.
A total of 89,900 residential building permits were issued from January to April 2023, down 27.3% year-on-year.
High costs for building materials and increasingly poor financing conditions are likely to have been the main factors contributing to the decline in construction projects.
