Building permits are in a steep decline
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 decreased by almost 25% compared to the previous year.
The number of building permits for apartments also dropped in May: According to the Federal Statistical Office, 17,800 apartments were approved for construction in that month, which is 24.2% less than a year ago and 43.8% less than in May 2022. These figures include building permits for both new apartments in new buildings and for new apartments in existing buildings.
From January to May, a total of 89,000 apartments were approved, as the statisticians reported. This was 21.5% less than in the previous year. The number of building permits for apartments 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 experienced setbacks in May, including single-family and two-family homes, as well as multi-family homes. The largest decline in single-family homes was 31.5% in annual comparison, 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 a shortage of orders 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 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." Given 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 housing construction industry has also been affected, with a decrease in the number of building permits for branches like apartment construction. As reported by the Federal Statistical Office, just 17,800 apartments were approved for construction in May, representing a 24.2% decrease compared to the same period last year.
The construction industry is feeling the impacts of economic challenges, leading to a decrease in building permits for various types of residential properties. Apart from apartments, single-family and two-family homes, as well as multi-family homes, have seen a declining number of permits issued.
Despite the ongoing challenges, the construction industry is showing signs of improvement in certain areas. The Munich Ifo Institute conducted a survey and found that fewer companies reported order backlogs or cancellations in June, which could signify an easing of the situation.
The order situation in the German residential construction industry might have improved slightly, but experts like Klaus Wohlrabe of the Ifo Institute point out that financing costs have not significantly improved. This, in turn, impacts the development of building permits and may delay any potential recovery in the construction industry.
