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Germany’s housing market is facing an escalating crisis as the number of building permits issued in the first half of 2024 nosedived to new lows, compounding the already dire situation in residential construction. According to the Federal Statistical Office (Destatis), only 106,700 housing units were approved between January and June 2024—a staggering 21.1% decrease from the same period in 2023, when the market was already in decline. This downturn highlights the severe challenges confronting the construction sector, which is struggling under the weight of high costs, expensive financing, and bureaucratic obstacles.
The drop in building permits is not confined to a single category of housing. The approval of single-family homes, a sector traditionally driven by owner-occupiers, plummeted by 30.9%, with only 18,600 units greenlit in the first half of 2024. Multi-family homes, the largest segment by volume, saw a significant decline of 20.8%, resulting in just 57,300 approved flats. Even two-family homes, a smaller category, experienced a 14.9% reduction in permits, falling to 6,600 units.
This decline represents a continuation of the downward trend seen in 2023, when only 260,100 flats were approved—already a sharp drop from the 354,400 permits issued in 2022. June 2024 alone recorded a 19% year-on-year reduction in permits, with a drastic 42.1% decrease compared to June 2022. These figures suggest that the total number of building permits for the year may barely surpass 200,000, falling far short of the German government’s target of 400,000 new homes annually.
Economic and regulatory challenges
The causes of this dramatic decline are multifaceted. High construction costs and soaring financing expenses have been cited as primary factors. The cost of building materials, which surged during the COVID-19 pandemic, remains elevated, while labor costs continue to rise. These financial pressures have made construction increasingly unviable, especially for private developers who account for the majority of housing starts in Germany.
Felix Pakleppa, Managing Director of the German Construction Industry Association (ZDB), bluntly summarized the situation: "The housing construction fiasco continues. The last time levels were this bad was around ten years ago. And it has been a continuous decline for 26 months now." Pakleppa further warned, “We are moving further and further away from [the government’s] target of 400,000 new homes per year. A tightening of the rental housing market is pre-programmed with these approval figures.”
Industry experts and associations are also critical of the current regulatory environment, which they argue is stifling construction activity. The German Property Federation (ZIA) has been vocal about the need for extraordinary measures to address the crisis. The new ZIA President Iris Schöberl compared the monthly release of building permit statistics to a repetitive ritual, stating, "The publication of the statistics on building permits is increasingly reminiscent of "Dinner for One: the same procedure as every month", (a reference to a much beloved annual short play on German TV). Schöberl emphasized the urgent need for regulatory reform, particularly the expansion of Section 246 of the German Building Code (BauGB) to facilitate faster housing construction.
Similarly, the German Real Estate Association (IVD) has criticized the federal government’s approach, particularly its draft amendment to the BauGB. IVD President Dirk Wohltorf described the proposed changes as "too despondent" and symptomatic of the government’s broader failures in construction and housing policy. Wohltorf called for a radical overhaul of the draft bill, urging the coalition to "throw out all measures that are not conducive to new construction" before it is passed into law by the end of 2024.
Calls for action and future prospects
The broader implications of this crisis are profound. With Germany’s population continuing to grow, the shortfall in new housing construction is exacerbating an already severe housing shortage. Axel Gedaschko, President of the GdW, the umbrella organization for the German housing industry, warned, "The hope expressed by the government that the trough would be reached in 2024 has so far turned out to be a serious mistake. The figures are more than alarming. At the same time, the population in Germany is growing."
Gedaschko and other industry leaders are advocating for a comprehensive reform of building regulations to prioritize housing construction above other concerns. The GdW has also called for an interest rate program to support affordable housing construction, arguing that a one percent interest rate could significantly boost activity. "We have been calling for this mantra-like for many months," Gedaschko noted, expressing frustration with the government’s tepid response.
The Munich-based ifo Institute, which tracks orders in the construction sector, expects the downturn to continue, predicting that only 175,000 new homes will be built annually by 2026—less than half of the government’s target. Ludwig Dorffmeister, an expert at ifo, expressed little optimism for a major turnaround, citing persistent material and labor costs as ongoing challenges.
REFIRE: The precipitous decline in building permits is not just a symptom of Germany’s deepening housing crisis—it’s a clear alarm bell. Without swift and decisive action, the widening gap between housing demand and supply threatens to push the market into an unmanageable state, with skyrocketing rents and growing social unrest. As the government finalizes its amendments to the BauGB, it’s not just the future of housing construction at stake, but the very stability of the market. The choices made now will determine whether Germany can steer itself out of this crisis or be forced to reckon with the severe economic and social consequences of inaction. The stakes have never been higher, and the time for bold, decisive measures is now.
