Housing crisis likely to worsen in 2024

Construction - Housing crisis likely to worsen in 2024

Economists and the construction industry expect the downturn in residential construction to continue in the new year. The Munich-based Ifo Institute estimates that only 225,000 homes could be completed in 2024, 45,000 fewer than last year. The most important industry associations are also pessimistic: the Federation of the German Construction Industry and the Central Association of the German Construction Industry, even if the respective forecast figures differ slightly.

Economist expects lowest level for single-family homes

Ifo economist Ludwig Dorffmeister expects 70,000 completions of new detached and semi-detached houses in 2024, which would be a new all-German low after 2009. "Multi-family house construction, including residential homes, will hold up better with 125,000 newly built residential units." According to Ifo estimates, around 25,000 more new apartments will be built in apartment buildings in 2023.

And finally, according to the Ifo forecast, a further 30,000 apartments could be built in existing houses and non-residential buildings in 2024, which would result in the 225,000 apartments mentioned by Dorffmeister.

DZ Bank - the central institution of the German cooperative banks - also assumes that the downturn will continue to accelerate: As a result of the construction crisis, annual completions could fall to 200,000 apartments by 2025, according to the recently published forecast.

The German government 's political target is 400,000 new apartments per year. Many experts considered this figure to be bold even in better times and it is now considered unattainable.

Building associations also pessimistic

"We are looking to the coming year with concern, and the outlook for residential construction in particular is gloomy," said Tim-Oliver Müller, Managing Director of the German Construction Industry Association. "In view of the significant slump in incoming orders, it is likely to deteriorate further in 2024 compared to the previous year."

The association mainly represents larger companies. The construction industry expects 250,000 homes to be completed last year and a further decline in the new year.

According to Managing Director Felix Pakleppa, the Zentralverband des Baugewerbes (Central Association of the Construction Industry) - which represents the interests of medium-sized construction companies - expects sales in the main construction sector to slump by 13% in 2024 and 235,000 new homes to be built.

DIW Berlin was less pessimistic in a report for the federal government published in December, predicting only a comparatively slight decline from 270,000 new apartments in 2023 to 265,000 this year.

However, hardly anyone expects residential construction to recover on its own in the next few years. "Without a fundamental change in housing construction policy with better subsidy and depreciation conditions for house builders and simpler construction specifications for the industry, even 200,000 apartments will no longer be feasible by 2025," says construction industry CEO Pakleppa.

Rise in construction costs and interest rates

What are the causes? Since 2020, both actual construction costs and interest rates on loans have risen considerably. Added to this are the back and forth of recent years regarding federal funding programs and the current budget cuts by the traffic light coalition. Construction companies and experts also repeatedly cite excessive bureaucracy and the constant tightening of building regulations.

Many people are desperately looking for housing, especially in the cities. Property prices have fallen in the past year, but rents have continued to rise in many places.

"The current budget squabbles are not making the general conditions any more favorable," says Ifo construction expert Dorffmeister. "However, new housing construction in particular has hardly benefited from public funding recently anyway."

Three months after the housing summit in the Chancellery, all measures planned as an economic stimulus have been stopped or put on hold, construction industry CEO Müller criticizes the federal government. "There is also a lack of clear prospects for the coming years, which is why the uncertainty on the market is immense."

Threat of capacity reductions and job cuts

According to an Ifo survey, the seasonally adjusted capacity utilization of building construction companies was only around 66% in December, the lowest figure since spring 2010. "The seasonal adjustment for individual winter months certainly doesn't always work perfectly. However, the December figure fits in well with the downward trend observed in 2023," says Dorffmeister.

A looming spectre on the horizon is job cuts in the construction industry. "It is already a bitter reality that every second company in the residential construction sector is suffering from a lack of orders," says Müller. "In view of this development, we will see a decline in employment in our industry in 2024 for the first time since 2008."

The construction industry has been warning of this for some time: After all, once companies have shed employees, it would be difficult to revive residential construction simply because of shrunken capacities. "The task now must be to prevent a massive crash, which would be dramatic for the housing construction industry, but also for social cohesion," demands construction industry CEO Müller.