High interest rates, expensive material, low returns: Due to the difficult framework conditions, the number of building permits in March fell more than it had in 16 years.
Only 24,500 apartments were approved and thus 29.6 percent or 10,300 fewer than a year earlier, as the Federal Statistical Office announced on Wednesday. The last time there was a sharper decline was in March 2007 with minus 46.5 percent. The number has been falling continuously since May 2022, and since October 2022 the minus has been more than ten percent.
“High costs for building materials and increasingly poor financing conditions are likely to have contributed to the decline in construction projects,” the statisticians explained the downward trend. Because of the interest rate hikes by the European Central Bank (ECB) in the fight against high inflation, construction loans have become noticeably more expensive.
From January to March, a total of 68,700 permits for apartments were issued, which was 25.7 percent fewer than in the same period last year. The figures include commitments for apartments in new buildings as well as for new apartments in existing buildings.
“Longer dry spell”
The negative trend is also likely to have an impact on the economy. “Due to the weather, construction went relatively well in the first quarter,” said ING chief economist Carsten Brzeski. “But that was a last gasp.”
Many new construction projects were gradually discontinued last year, mainly because of higher material costs. “Now the higher interest rates are added,” said Brzeski. “I’m assuming that we’re now going through a long dry spell and won’t see any significant improvements again for a good year.”
The number of building commitments for single-family homes fell by an above-average rate in March, namely by 31.1 percent to 14,300. Two-family homes saw an even larger drop of 51.9 percent to 4,100.
“Even in the numerically strongest type of building, the multi-family houses, the number of approved apartments fell significantly,” emphasized the statisticians. There was a minus of 25.2 percent to 37,200.
The government’s new construction targets are missed
According to industry estimates, at best 250,000 apartments will be completed this year. Federal Building Minister Klara Geywitz (SPD) has already admitted that the new construction target of the traffic light coalition of 400,000 apartments per year will also be missed in 2023.
In view of the misery, the real estate industry insists on more commitment from the public sector. The Central Real Estate Committee (ZIA) advocates a federal loan program with two percent interest.
“If the housing yields are two to three percent, but the loan interest is four percent, nobody can build,” said ZIA President Andreas Mattner. “Therefore, we have to radically change the framework conditions.”
ul/hb (rtr, dpa)