Building permits are in a massive dive
Dear Materials and increased financing costs continue to deter many potential home builders and investors. This is evident in the number of building permits issued. These fell by almost 25% compared to the previous year.
The number of building permits for residential units also declined in May: According to the Federal Statistical Office, 17,800 residential units were approved in that month, 24.2% less than a year ago and 43.8% less than in May 2022. These figures include building permits for both new residential units in new buildings and for new residential units in existing buildings.
From January to May, a total of 89,000 residential units were approved, as the statisticians reported. This was 21.5% less than in the previous year. The number of building permits for residential construction in Germany has been declining for the past two years month by month, and this decline is usually in the double-digit percentage range.
All types of buildings were affected by setbacks in May, including single-family and two-family homes as well as multi-family homes. The largest setback for single-family homes was 31.5%, for two-family homes it was 15.7%, and for multi-family homes, the largest building type, it was 21.7%.
However, the order situation in German residential construction eased in June. According to a survey by the Munich Ifo Institute, fewer companies reported order backlogs or cancellations. Specifically, the proportion of cancelled orders fell from 15.1 to 13.7%. Companies reported order backlogs in 50.2%, which was 1.5 percentage points less than in May. Both values have been declining since a brief increase at the beginning of the year but remain unusually high.
"The shortage of new orders remains a major problem," said Ifo expert Klaus Wohlrabe. "Financing costs have not yet improved much. This is also reflected in the development of building permits." Wohlrabe does not expect a quick improvement: "What is not contracted and approved today cannot be built immediately." In light of the current figures, it is not surprising that the business climate in residential construction, despite a slight improvement, remains deeply negative at -44.3 points. "The industry is still far from optimism," Wohlrabe concluded.
The decline in building permits is not limited to residential units, as it also affected various types of buildings in May. This includes a 31.5% decrease in single-family homes, a 15.7% decrease in two-family homes, and a 21.7% decrease in multi-family homes. Despite this, the real estate sector continues to grapple with high financing costs, which deter many potential home builders and investors. This issue is reflected in the data from the Federal Statistical Office, showing a 24.2% decrease in building permits for residential units in May compared to the previous year. The housing construction industry, therefore, remains a concern for the German economy, with experts predicting a slow recovery due to the lingering impact of high financing costs.
