German construction industry misses targets amid housing crisis

Housing construction in Germany again failed to gain momentum last year despite high demand, particularly in urban centres, according to the official figures released on Thursday.

The number of flats that been completed fell by 0.3% compared to the previous year, the Federal Statistical Office reported, representing a total of 294,400 homes built.

This was a smaller drop than feared, but was still a long way off the centre-left government's target of building 400,000 new homes per year.

The number of houses completed per year has hardly changed since 2021.

Housing Minister Klara Geywitz described the construction situation as stable. "In addition to the 294,400 completed flats, a further 390,900 flats are currently under construction."

In addition, there has been a significant increase in approvals for social housing construction in 2023, she said. The number of subsidized housing units has risen by more than 20% to a total of 49,430, according to the minister.

Construction projects have become much more expensive over the past two years due to the sharp rise in interest rates on loans and construction costs. In residential construction in particular, many projects have been postponed or cancelled as a result.

The industry is complaining about a lack of new orders and cancellations of already planned projects.

Many of last year's completions are likely to be attributable to authorizations that were applied for and granted in the years up to 2022 under much better conditions, explained the German Construction Industry Federation.

"The bottom line, however, is that fewer homes were built last year than the demand for affordable housing actually requires," said managing director of the federation, Tim-Oliver Müller.

Building permits have also been falling for months. The construction industry association recently forecast that only 220,000 to 230,000 flats would be completed in the current year.

In view of the housing shortage, construction and property industry associations are calling for more state funding, especially in urban regions.

The German Property Federation (ZIA) puts the shortfall in new construction in Germany at 600,000 flats and warned that this figure could rise to as many as 830,000 flats in 2027 if appropriate action isn't taken.

Many construction projects stalled last year. One reason is likely to be the shortage of skilled labour. The statistical office explained that the time from approval to completion had increased further to 24 months for residential buildings completed in 2023.