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Ifo and DIW: German housing construction is threatened with a catastrophe year in 2024

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Ifo and DIW: German housing construction is threatened with a catastrophe year in 2024

Housing construction in Germany is threatened with a catastrophic year in 2024. Picture Alliance

There is already a shortage of hundreds of thousands of apartments in Germany. But housing construction continues to collapse. 2024 threatens to become a catastrophic year.

This is the result of two new studies by the Ifo Institute and the German Institute for Economic Research (DIW).

The Ifo index for the business climate in housing construction fell to its worst value ever measured. The DIW predicts a decline in housing spending of 3.4 percent.

The crisis in housing construction in Germany will deepen this year. Although hundreds of thousands of apartments are already missing, new construction is likely to decline significantly. The mood among construction companies is worse than ever. In short: 2024 threatens to be a catastrophic year for housing construction. This is how new analysts from the Ifo Institute and the German Institute for Economic Research can be summarized.

According to a survey by the Ifo Institute, German housing construction companies are more pessimistic than ever since reunification. The Ifo business climate for housing construction fell to minus 56.8 points in December, the lowest level since the surveys began in 1991. In November the value was minus 54.4 points. “The exceptionally weak expectations show that companies currently have no hope,” said Ifo researcher Klaus Wohlrabe. “The prospects for 2024 are bleak.” Well over half of the 500 residential construction companies surveyed complain about too few orders.

“Federal government, we have a problem,” commented Tim-Oliver Müller, managing director of the Main Association of the German Construction Industry. The 2024 federal budget would probably not provide any additional money for housing construction. “This is extremely bitter for our country and tens of thousands of tenants.” Despite the acute housing shortage, the number of new housing construction in many cities could continue to collapse this year.

The federal government is pursuing the goal of 400,000 new apartments coming onto the market every year. This goal has already been missed by 2022. In the new year, the number of new apartments could even fall below 200,000.

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Müller calls for housing construction to be promoted by simplifying building regulations and bureaucracy. Examples include the introduction of digital building applications and the standardization of the 16 state building regulations into one federal building code. “All of this can reduce construction costs and doesn’t cost a cent,” said Müller.

The DIW expects the construction volume of residential construction to collapse by 3.4 percent in 2024. This would be a greater decline than the minus 2.3 percent from 2023. Only civil engineering is cushioning the slump in overall construction volume. Overall, spending on construction services would decrease in 2024 for the first time since the financial crisis, also due to falling construction prices. The situation is not expected to stabilize until 2025. The goal of building 400,000 new apartments every year is becoming even more distant.

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“The slump in the construction industry is taking longer than expected. This year, construction volume is likely to decline even more sharply than last year,” predicts DIW economist Laura Pagenhardt. New residential construction is likely to continue to lag behind in 2025. “Housing construction has had three difficult years and there will be another difficult one to come,” adds Martin Gornig from DIW. The reason for the miserable situation is the enormous increase in building prices and interest rates. The financing conditions are currently difficult for private households to cope with.

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After all, the rise in construction prices has slowed somewhat recently, reported the Federal Statistical Office. Building interest rates even fell significantly at the beginning of the year. The bottom could now have been reached. “The incoming orders, which are currently stabilizing, provide a slight glimmer of hope,” said Gornig.

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Construction work on existing housing is likely to develop slightly better than new construction. “In order to get the construction industry going again, politicians must eliminate the uncertainty about the funding programs as quickly as possible,” demanded Pagenhardt. “This includes in particular the funding programs for energy-efficient building renovations, but also for new residential construction.”

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