The Ampel government’s goal of building 400,000 new homes in the current year seems increasingly unrealistic. New figures from the Federal Statistical Office show that new residential construction in Germany fell by 4.2 percent to around 293,400 apartments last year. After more than 300,000 new apartments were completed for the first time in 2020, new construction fell back to the level of 2019.
The main reasons for the decline in construction activity are higher prices for building materials, delivery bottlenecks and shortages of raw materials. The shortage of skilled workers in construction is also slowing down. As these problems continue or even worsen in 2022, the target of 400,000 is a long way off. “I am not satisfied with the current figures,” admits Federal Building Minister Klara Geywitz (SPD) when asked by WELT.
Nevertheless, Geywitz does not want to move away from her new construction goal. The industry is now letting it be known that it no longer really believes in the number itself. For example, Peter Hübner, General Manager of the Main Association of the German Construction Industry, said last Thursday: “It’s okay if you at some point take a more realistic view of a goal you have set, such as the construction of 400,000 new apartments, and move away from it in view of the market situation.”
Other industry representatives are sharper on the social democratic minister. The president of the central association of the housing industry GdW, Axel Gedaschko, warns of a “dramatic slump in housing construction”. He called for “more planning security” for companies. The government must take countermeasures with a “reliable and adequate subsidy system and an effective raw materials strategy for the sustainable supply of Germany’s construction sites”.
Oliver Wittke also sees the main responsibility for the sluggish housing construction in politics. “We focus in particular on accelerating and reducing the bureaucracy of approval procedures.” More and faster approvals, so the credo in the industry, are the solution, says the general manager of the Central Real Estate Committee (ZIA).
The construction industry’s accusations against politicians should be treated with caution. Because the current figures show, as in previous years, that the requirement has long been met. Because while industry and trade delivered 4.2 percent fewer apartments, the number of permits rose by 3.3 percent to almost 381,000 units in the same period.
The so-called construction overhang with apartments that have been approved but not yet built rose by 67,000 to around 846,000 units. This is the highest level since 1996. The administration is delivering – even on a scale that comes close to the goal of the federal government.
However, the real estate industry associations showed no signs of self-criticism on Monday. Instead, the discontinuation of funding for new buildings according to the KfW 55 standard was also criticized. This discontinuation had already been announced in autumn, with effect from the end of January this year. So anyone who built in 2021 could still use the funding.
This is also ruled out as a reason for the decline in construction activity in the past year. The same applies to the rise in interest rates, which the real estate industry identified on Monday as the culprit for the reluctance to build: interest rates were at an all-time low until the end of December 2021, and the rise only began at the end of January.
In this respect, Minister Geywitz sees herself as only partly responsible: “The construction backlog shows that sufficient living space can be built in the next few years if conditions improve,” says the SPD politician. Unusually harshly, she accuses the construction industry, at least indirectly, of delaying tactics:
“Approved projects are stopped, but not canceled entirely. Private builders and companies are waiting to see how delivery bottlenecks, shortages of raw materials and significant price increases will continue to have an impact. The German state has hardly any influence on these extremely difficult conditions.”
Politics would have more influence on reducing bureaucracy. The industry criticizes that an excess of regulations would also slow down new construction. This is exactly what Geywitz wants to work on. “Builders rightly expect that we now do what is within our sphere of influence to improve the situation.” Specifically, approval and planning processes are to be digitized, the 16 state regulations are to be made more uniform and serial construction is to be made easier.
“This is exactly what is now being worked out in the Alliance for Affordable Housing. Specifically, we will review individual ordinances with the federal states that make little sense due to their regional differences,” says Geywitz. It is now a matter of “finally driving forward improvements that have been discussed for years,” says the minister.
The EU is also concerned about the German real estate market. In their current macroeconomic analysis of Germany, economists from the European Commission warn that there is still too little construction in Germany. “Investment in housing has gradually increased from a low level, but supply still cannot keep up with demand,” reads a summary of the analysis.
The gap between supply and demand is partly responsible for the fact that there is still too little investment – both by companies and private individuals. That doesn’t match the very high savings of Germans.
The authority also warns of the social consequences. Insufficient supply is driving up existing property prices, which is driving up wealth inequality, warns a Commission official: “Sharp increases in property prices are driving wealth in sections of the population that are already doing well.”
Another effect reinforces the redistribution effect: the reduced supply of living space drives up the rents of those who cannot afford to own property. “It’s getting harder to find quality, affordable housing,” warns the EU official. In addition, the price development on the real estate market is endangering Germany’s economic development. Germany needs additional workers, but too little and too expensive housing made it more difficult to attract the much-needed staff.
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