Record Shortage of Orders in German Housing Construction

The German housing construction sector is facing an unprecedented shortage of orders, as revealed by recent findings from the Ifo Institute. Despite a continuous rise in rental prices, the number of completed apartments remains insufficient to meet the demand.

According to the latest monthly economic survey conducted by the Ifo Institute, a staggering 57% of construction firms reported a lack of contracts, marking the highest percentage recorded to date. The outlook for the coming months remains bleak, with many companies expressing pessimism regarding future business conditions.

Klaus Wohlrabe, head of the Ifo surveys, indicated that the ongoing crisis has become a normalized state within the industry. Even with recent interest rate cuts by the European Central Bank, there has been no significant improvement in the situation.

The downturn in the housing construction sector began in the spring of 2022 and reached its lowest point about a year ago. Since then, the industry has experienced slight fluctuations without achieving any substantial recovery. The Ifo business climate index for the housing sector stood at a concerning minus 43.2 points in January, a decline from the previous month's minus 41.8. While companies rated their current situation slightly less negatively than in December, their expectations for the upcoming months have deteriorated again.

Despite the persistent challenges facing many construction firms, the demand for new housing remains high. This paradox is largely attributed to soaring construction costs rather than a lack of need for housing. Tim-Oliver Müller, Chief Executive of the German Construction Industry Association, highlighted the significant discrepancy between the strong demand for affordable housing and the limited availability, particularly in major urban centers.

For instance, in 2022, Berlin welcomed over 75,000 new residents, yet only 15,000 new homes were constructed. Müller noted that this mismatch poses a significant social risk, as the gap between demand and supply continues to widen.

Looking forward, the situation appears grim. The previous government coalition in Berlin had set an ambitious goal of constructing 400,000 new homes annually, a target that has remained unmet. In 2023, approximately 300,000 new units were completed, but projections from the Ifo Institute and the European Construction Research Network Euroconstruct suggest that this number could plummet to below 200,000 by 2026.

The ongoing crisis in the housing sector highlights the urgent need for effective policies and measures to address the challenges faced by construction firms and to ultimately provide adequate housing solutions for the growing population.