Nothing comparable observed
Cancellations in residential construction at record levels
September 12, 2023, 8:53 a.m
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The federal government’s plans to build 400,000 new apartments every year are a long way off anyway. But even with projects that have already been approved, cancellations are occurring more and more often. IFO boss Wohlrabe complains about great uncertainty and immense costs.
In German housing construction, more and more companies are complaining about cancellations and a lack of orders. “Cancellations in residential construction are piling up to a new high,” said the head of the IFO surveys, Klaus Wohlrabe. In August, 20.7 percent of companies reported canceled projects – an increase of 1.8 points compared to the previous month.
“We have not observed anything comparable since the survey began in 1991. The uncertainty in the market is huge,” said Wohlrabe about the cancellations. As a result of the rapidly increasing construction costs and the significantly higher interest rates, many projects that were still profitable at the beginning of 2022 are currently no longer feasible. “Some companies are already up to their necks in water,” said Wohlrabe. “Currently, 11.9 percent of housing construction companies are reporting financing difficulties. This is the highest figure in over 30 years.” And the majority of companies feared further declines in business over the next six months. “Business expectations are at an exceptionally weak level of minus 60.1 points.”
“The reduction in funding due to the stricter energy saving requirements is also putting a strain on the builders’ calculations,” added Wohlrabe. As a result, construction companies increasingly found themselves in difficulties. Some companies still had well-filled order books. However, 44.2 percent of the companies surveyed are already reporting a lack of orders, after 40.3 percent in July. For comparison: At the same time last year, the proportion was only 13.8 percent.
Leading institutes are also taking a negative view of the German economy because of the construction crisis. The IFO Institute, for example, assumes that gross domestic product will shrink by 0.4 percent this year.