Companies are reducing construction activity
Wave of cancellations hits housing construction
April 12, 2024, 8:50 a.m
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Germany has a shortage of living space – but the housing construction situation remains tense. High interest rates and construction costs are causing a downturn in the construction industry, with over half of companies complaining about a lack of orders. In addition, the number of canceled orders has recently increased significantly.
In German housing construction, almost every fifth company is affected by canceled orders. In March, 19.6 percent complained about this, after 17.7 percent in February, as the Munich IFO Institute announced in its company survey. “The situation in housing construction remains tense,” said IFO survey chief Klaus Wohlrabe. “Too few new orders are being added to the cancellations.”
In March, 56.2 percent of companies reported a lack of orders, after 56.1 percent in February. Although the business climate in residential construction rose slightly, it remains clearly negative. Expectations for the coming months also remain heavily pessimistic. “Due to a lack of orders, many companies are reducing their construction activity,” said Wohlrabe. In civil engineering – which includes, for example, state-dominated road construction – cancellations are currently not such a big problem. Currently only 6.5 percent of companies report this, after 5.3 percent in February.
However, around one in four companies is lacking orders. The increased interest rates and higher construction costs have recently caused a lull in construction, especially in residential construction. Because many private individuals can no longer afford to build, and it is currently hardly profitable for investors.
The industry is therefore calling for political measures to stimulate the construction industry. From the perspective of associations in the construction and real estate industry, the federal and state governments should use special funding to remedy the slump in housing construction. Annual subsidies of 15 billion euros are needed for 100,000 new social housing units and a further 8 billion euros for the construction of 60,000 affordable apartments, according to the Housing Association. In addition, the public sector should boost construction activity with an interest rate reduction program of one percent.