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Building permits collapse: The situation on the housing market is becoming increasingly dramatic

The situation on the housing market, which is tense in many places, threatens to deteriorate further. After a slump in building permits in March, the construction industry association fears a “residential construction recession”. “The rental market has frozen, too few apartments are being built for the strong demand,” he said
Chief Executive of the Main Association of the German Construction Industry Tim-Oliver Müller on Wednesday. This affects construction companies, but also thousands of tenants.

Despite the demand for housing, the number of permits has been falling since last year. According to the Federal Statistical Office, the pace accelerated in March. Accordingly, the authorities approved the construction of 24,500 apartments. That was a minus of 29.6 percent compared to the same month of the previous year and the strongest decline since March 2007 (minus 46.5 percent). In the first three months of the current year, a total of 68,700 building permits for apartments were issued, 25.7 percent fewer than in the same period last year.

Rethinking of funding policy required

Because of the sharp rise in interest rates on loans and high construction prices, many builders are holding back on projects or canceling them – from private house builders to large investors. In addition, the industry criticizes over-regulation and uncertainty among potential builders, for example due to the planned building energy law, with which the traffic light government wants to herald the long-term farewell to oil and gas heating. “Politicians have to make a decision: do they want to regulate themselves in detail or build apartments efficiently?” said Müller. The general manager of the Central Association of the German Construction Industry, Felix Pakleppa, warned: “Without rethinking the subsidy policy, housing construction will crash. We will be missing the urgently needed apartments for many years to come.”

The biggest financing traps for real estate buyers

The construction industry association recently reckoned with at best 250,000 completions in the current year – far away from the former goal of the federal government of 400,000 new apartments per year. The pressure on rents is therefore likely to remain high. “People who can no longer buy because of the jump in interest rates must continue to live somewhere,” said Stephan Kippes, market researcher at the real estate association Germany South recently. The presumed consequence of the slump in construction activity and the rise in interest rates: “The supply will become even tighter and rents will rise,” Kippes expects.

The Confederation of German Trade Unions (DGB) demanded that the public sector go on the offensive if the private sector did not build. “We need a massive increase in funds for social housing and an investment fund that the federal government can use to strengthen the equity base of municipal and state-owned housing companies,” said Stefan Körzell, DGB board member.

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According to the Wiesbaden authorities, a total of 57,700 apartments were approved for new residential buildings from January to March 2023, a decrease of 28.4 percent. The number of permits for single-family houses fell by 31.1 percent, for apartments in two-family houses by as much as 51.9 percent. In the numerically strongest type of building, multi-family houses, the number of approved apartments fell by 25.2 percent.

Also read, How owners should react when tenants stop paying

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