There is a risk of a downward spiral in the housing market – and as a result a growing housing shortage. Picture Alliance
High interest rates, rising costs and stricter regulations are driving housing construction into a dangerous downward spiral. If the slump continues, company bankruptcies and job cuts will follow.
With shrinking capacity in the construction industry, it will not be possible to build enough apartments for years.
Hundreds of thousands of apartments are already missing. Soon there will be millions.
Housing construction in Germany is entering a dangerous downward spiral. The triggers are high interest rates, rising construction costs and increasingly strict regulations for building. Construction activity is currently collapsing. An increasing number of construction companies are reporting financial difficulties, reported the Ifo Institute. There is a threat of a wave of bankruptcies. However, if the capacity of the construction industry were to shrink, it would, according to the Ifo-Instituts become an obstacle to future revival. There is a risk of a dramatic housing shortage.
“Housing cancellations are piling up to a new high,” said Ifo economist Klaus Wohlrabe. In August, 20.7 percent of construction companies reported canceled orders, and 44.2 percent of companies reported a lack of new orders.
The downward spiral in housing construction
“We have not observed anything comparable since the survey began in 1991. The uncertainty in the market is huge,” said Wohlrabe. “That is bitter: every apartment that is not ordered today will not be available tomorrow,” comments Tim-Oliver Müller, managing director of the Main Association of the German Construction Industry.
The majority of companies feared further declines in business over the next six months. “If this drags on for a longer period of time and many companies leave the market because they go bankrupt, there would then be a lack of capacity to achieve the housing construction goals, even if the general conditions are good,” said Wohlrabe. “This is a medium-term risk.”
Like other industries, construction is facing a demographic downturn this decade as many older workers retire. The worse the situation in construction, the lower the tendency to hire new staff – and thus the capacity in the future.
The federal government’s goal is 400,000 new apartments per year. This was already a long way off. But things could get even worse: “We will complete around 240,000 apartments this year because we are working through the order backlog,” estimates construction industry managing director Müller. “We expect the big dent next year, when there is a risk of falling well below 200,000 apartments.”
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A main cause of the malaise is the simultaneous increase in construction costs and interest rates, which is making many construction projects unprofitable. “Some companies are already up to their necks in water,” said Wohlrabe. “Currently, 11.9 percent of housing construction companies are reporting financing difficulties. This is the highest value in over 30 years.”
Germany is threatened with a real housing shortage
There is a consensus in the construction and housing industry that politics plays a major role in making construction more expensive, be it the tightening of energy saving requirements and fire protection or the new heating law. “As a result of more and more regulation, building, renovating, maintaining and managing is becoming more and more complex and therefore more expensive,” says Axel Gedaschko, President of the Federal Association of German Housing and Real Estate Companies (GdW).
“Behind this are social demands that are taken up politically. On the other hand, more and more regulation should prevent rising costs from overburdening private households.” There are also social demands behind this. “Both are understandable in the matter, but are no longer compatible,” criticizes the GdW President.
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“Every month there is new bad news. A change in interest rates is not expected for a longer period of time.” According to the association’s assessment, the development will worsen again in 2024 and 2025. “A shortfall of 700,000 apartments is expected for 2025 if political countermeasures are not taken very quickly,” says Gedaschko. The GdW expects 214,000 new apartments for 2024 and is therefore hardly more optimistic than the construction industry.
A housing construction summit is planned for the end of September in the Chancellery. The construction industry is calling for a large construction package that is intended to avert the long-term crisis – and would probably financially eclipse everything that the federal governments have spent on housing construction in the past decades: This includes, among other things, a massive expansion of interest rate reductions and the streamlining of building standards , a “special fund” for public housing companies and the temporary suspension of real estate transfer tax.
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