Stockholm Housing Construction - Building permits decline - Depression in land purchases
In the fight against housing shortages and rising rents in Germany, there is little relaxation in sight. In May, the number of building permits fell significantly again, according to the Federal Statistical Office. They serve as an indicator for new construction, which is stalling due to soaring interest rates and construction costs, while the demand for housing in cities remains unbroken. The reluctance of builders is also evident in a new study by the Hamburg Institute for Urban and Regional Research. According to this, there were fewer land purchases for housing construction in 2023 than at any time since at least 1995.
Building permits down by a quarter
In May, 17,800 dwellings were granted permits, 24.2% fewer than a year earlier. In the first five months, permits were issued for the construction of approximately 89,000 dwellings, a decrease of 21.5% or about 24,000 fewer dwellings than in the previous year. Significant declines occurred in the first five months of 2024 for single-family homes (-31.5%) and multi-family homes (-21.7%).
"Still a lull in the housing market," said Tim-Oliver Müller, CEO of the German Construction Industry Association. Although the federal government has taken many measures to stimulate the housing construction sector, "besides sufficient funding, we need a reduction in the endless requirements for our residential buildings." Without a radical cut in costly regulations, nothing will change.
Praise and criticism for the federal government
The figures show that the federal government's annual target of 400,000 new dwellings in the current year is moving even further away than in 2023. With 260,100 permits granted, it was already the weakest year since 2012.
High building interest rates and "overambitious energy requirements" are scaring off builders and investors, said Felix Pakleppa, CEO of the German Construction Industry Confederation. "Building must become simpler. It's a bright spot that politics is taking the initiative with a legislative proposal for simpler housing construction, the Building Type E Law."
294,400 dwellings completed in 2023 - slightly fewer than the previous year (295,300), but significantly more than expected by economists and the real estate industry. The weak construction sector and the decline in building permits are likely to have an impact on production figures with a time lag. The Building Industry Federation expects about 250,000 new dwellings for this year.
Land purchases for housing construction at record low
The reluctance of builders is also evident in land purchases. A study by the Hamburg Institute for Urban and Regional Research shows that the number of transactions for buildable residential land in Germany reached a historical low in 2023. The authors see this as a fatal signal in the fight against housing shortages.
In the previous year, about 46,700 transactions for buildable residential land were recorded nationwide, 34% fewer than the previous year, according to the analysis based on actual transactions. The land area transacted decreased by almost 40% to around 4,400 hectares, and the sales volume decreased by over 45% to 8.9 billion euros.
"Density increase and stacking alone are not enough"
Both the number of transactions and the area sales in 2023 marked the lowest points since the beginning of the German time series of the investigation in 1995," said Sebastian Wunsch, Head of Real Estate Economic Analyses at Gewos. "The currently unsold areas are the ungranted permits of tomorrow and the unbuilt housing units of the day after." With densification and upward extension alone, one cannot close the demand gap.
Gewos records the closed real estate transactions for all freehan towns and districts annually with the Real Estate Market Analysis IMA. The analysis has been conducted since 1982 and covers land purchases by private households as well as investors.
Sales of residential land since 2021 have approximately halved
According to Gewos, the returns are even greater in comparison: The sales of residential land have dropped by 54 percent, the area and monetary sales have each decreased by around 60 percent.
Land sales are a good leading indicator for new construction, according to Gewos. "While the decline in building permits in this and the coming years should manifest itself in falling completion numbers, the low sales of buildable residential land and increasing land indicate a long-term low level of new construction activity in Germany."
- The decline in building permits is a concern for the Federal Statistical Office, as it indicates a stalling in new housing construction due to high interest rates and construction costs.
- The German Construction Industry Association's CEO, Tim-Oliver Müller, believes that besides sufficient funding, a reduction in regulatory requirements is necessary to stimulate housing construction.
- According to the Hamburg Institute for Urban and Regional Research, land purchases for housing construction in 2023 were at a record low, a concerning signal in the fight against housing shortages.
- The building sector and the decline in building permits are likely to have an impact on production figures with a time lag, as indicated by the Building Industry Federation's prediction of about 250,000 new dwellings for this year.
- Felix Pakleppa, CEO of the German Construction Industry Confederation, believes that simplifying the construction process can attract builders and investors, citing the Building Type E Law as a positive step.
- Studies show that high building interest rates and "overambitious energy requirements" are deterrents in the housing market, leading to fewer building permits and completed dwellings in Frankfurt and other low-lying areas of Germany.
- The federal government's annual target of 400,000 new dwellings is moving further away, with only 260,100 permits granted in the current year, according to the Federal Statistical Office in Wiesbaden.
