For several months now, investors and construction companies in Germany have been experiencing a sharp decline in building permits for residential properties. According to the Federal Statistical Office, the number of permits fell by almost a quarter in the first half of 2023, and this decline continued into July 2023. This article explains the reasons behind this trend and its potential consequences.

Further details:

The Federal Statistical Office reports that 21,000 building permits were issued for the construction or conversion of apartments in July 2023, a decrease of 31.5 percent compared to the previous year. Looking at the first seven months of the year, the total number of building permits fell by 27.8 percent to 156,200 apartments compared to the same period last year. High construction costs and increased interest rates played a significant role in this decline.

Real estate and construction associations anticipate that the German government will not meet its 2023 target of building 400,000 new apartments annually. The sharp decline in building permits for apartments in various categories underscores this conclusion. According to the Federal Statistical Office, fewer permits were issued for single-family homes, two-family homes, and multi-family homes compared to the same period last year (down 36.5 percent, 53.2 percent, and 27.5 percent, respectively).

One reason for the decline in building permits for apartments is the high cost. In particular, the prices of building materials have risen sharply in recent months, and wages for skilled workers have also increased due to the ongoing labor shortage in the industry. All of this drives up construction costs and leads many developers and investors to decide against new projects.

Another key factor is the rise in interest rates. The low-interest-rate environment of recent years allowed investors to take out cheap loans and thus finance their projects. However, rising interest rates make financing construction projects more expensive. This deters many investors, which is reflected in a decline in building permits for residential properties.

Summary:

The sharp decline in building permits for apartments in Germany is having a serious impact on the housing market. It is leading to a decrease in the amount of land being built and a deterioration in the housing supply, thus contributing to a further exacerbation of the housing shortage in many cities. Although a solution to the current problems is not in sight, there is hope that housing construction will recover in the future once construction costs and interest rates return to normal.

Source: PRESS RELEASE: https://www.destatis.de/DE/Presse/Pressemitteilungen/2023/09/PD23_369_3111.html