Residential building construction site with scaffolding and large cranes
Fhm | Moment | Getty Images
The German construction sector shows no signs of recovery, even after being in crisis for months and despite pledges of support and investment from the government.
Carsten Brzeski, head of global macro research and chief economist for Germany at ING Bank, told CNBC that recent economic data shows the industry is still in a “gloomy situation.”
New building permits fell 24.2% in May compared to the same month last year, and are down about 40% compared to May 2022, according to Latest building permit numbers Published last week.
The data shows that between January and May of this year, single-family building permits were down more than 31%, and multi-family building permits were down more than 21% compared to the same period last year.
Felix Backleba, president of the Central Association of the German Construction Industry, pointed to the bleak outlook for the sector.
“Building permits in Germany still show only one trend: downward,” he said, referring to data that has not reflected growth since April 2022.
He said that building homes usually takes about two years from the date of issuance of a permit until the final stages, so the lack of permits now will continue to have an impact.
“You don’t need a degree in statistics to realise that Germany is sliding into a deep housing construction crisis,” Paklipa told a news conference. statement It was released last week and translated by CNBC.
The German construction industry has been struggling for some time, with sentiment and expectations for the industry hitting all-time lows earlier this year. Broader economic trends such as inflation and rising interest rates have also weighed heavily on the sector.
The underlying causes of the decline in permits have not abated yet and are unlikely to abate anytime soon, Brzeski said. He added that interest rates are unlikely to abate significantly and that issues such as construction costs and labor shortages remain.
Klaus Wohlrabe, head of surveys at the Ifo Institute for Economic Research, agreed that the shortage of orders is likely to continue for some time. He said that the high costs borne by private households to build homes remained the “fundamental problem”.
The German government pledged in its 2025 budget to boost investment in the sector and build more homes. the main points Includes funding to increase affordable social housing and financial support for private households building climate-neutral homes.
But so far, the government’s approach has shown “very little impact,” according to ING’s Brzeski, adding that the new measures do not look any more positive.
“The new measures are again going in the right direction but are still too small for real change,” he said.
Increased government spending and temporary measures to boost the sector, such as tax cuts or lower transaction costs, are needed to make a real difference, Brzeski said.
The government’s pledges are just that, pledges at the moment, with uncertainty over how they will materialise, says Wohlraub. This leaves businesses with little basis for planning ahead, he says, especially since budgetary measures are likely to be applicable for only one year rather than the long term.
“Overall, sentiment among companies is very bad. Things may improve a little, but the valley is deep,” said Wohlraub.