Significantly Fewer New Dwellings in Germany by 2025
The ifo Institute expects a drastic decline in residential construction in Germany. According to the Institute’s calculations, around 245,000 dwellings will be completed in new residential buildings in 2023, with another 210,000 to follow next year but only around 175,000 in 2025. Together with the other completions, only about 200,000 housing units will be built in 2025. The German government’s target, however, is 400,000. “The most important reason for the decline is a huge increase in the cost of financing and construction services. At the same time, the German government has drastically cut back on subsidies for new construction and once again tightened the standards for new construction at the beginning of 2023,” says ifo construction expert Ludwig Dorffmeister.
“For many months now, the vast majority of developers have not been initiating any new projects. The orders currently on their books are for projects that are already too far advanced to cancel,” Dorffmeister says. Nevertheless, construction projects are still taking place in the high-price segment, for whose customers the increased costs are only a minor issue. “The extent to which changes to the conditions in individual Länder and municipalities will have an impact remains to be seen,” he adds.
It will also take some time to complete projects, meaning the pipeline will not empty all that quickly. However, given the much weaker demand for new construction and a still elevated frequency of order cancellations, order backlogs are likely to shrink significantly in the course of the year.
In May, the percentage of cancellations in residential construction rose to 17.8%, up from 14.7% in April. A shortage of orders affected 33.9% of businesses in May, up from 31.7% in April.