Is the Housing Market Showing a Sign of Recovery? A Closer Look at Germany's New Apartment Approvals
New housing projects given green light - Sign of progress or fleeting moment? - Housing Approvals Increase: Is It a Sign of a Turnaround or Overheating?
Let's dive into the recent surge in new apartment approvals in Germany. With a 3.4% year-on-year increase in the first quarter of this year, a total of 55,400 new units were approved, as reported by the Federal Statistical Office.
This jump in housing permits has sparked discussions among economists about a potential trend reversal after years of dwindling approval numbers. Sebastian Dullien, scientific director of the trade union institute for macroeconomics and business cycle research (IMK), believes that "we may have reached the trough in residential construction." However, he cautions that the construction activity is expected to remain subdued initially, but the trend is promising due to increased purchasing power and lower interest rates.
Interest rates for loans have indeed become slightly cheaper in recent weeks, dipping from 3.4% in March to 3.19% now, according to credit intermediary Dr. Klein. On the financing front, building is seemingly becoming a more economical venture. Nonetheless, escalating construction costs remain a burden for developers.
The majority of the 46,100 approved apartments for the first quarter are destined for new constructions. Notably, the number of approved single-family houses has soared by 15.3% to 10,600 units.
While the Central Association of the German Construction Industry acknowledges the slight improvement at the end of the quarter, they remain guarded in their optimism. According to CEO Felix Pakleppa, a level of 90,000 units, like in the first quarters of 2021 or 2022, is required to meet long-term demand. "We are still drawing on order backlogs," Pakleppa notes.
Last year, the overall number of approvals in Germany dipped by almost 17% to a 12-year low of 215,900 units. Amidst this decline, there exists a considerable pile of around 800,000 approved but yet-to-be-realized apartments, often referred to as the construction backlog. Some industry experts question the financeability of a significant portion of this backlog under the current conditions.
The new federal government has made increasing housing construction a declared goal, with the new Federal Minister of Housing, Verena Hubertz, aiming to accelerate housing construction in her first 100 days in office. Hubertz's proposed initiatives, under the banner of "Speed, Technology and Tolerance", focus on streamlining approval procedures, promoting modern construction methods, and facilitating the designation of more building land.
In conclusion, while the recent spike in new apartment approvals in Germany is encouraging, it remains unclear whether we're witnessing a temporary surge or a sustainable recovery. It's essential to keep a close eye on the housing market trends and address the ongoing challenges facing the construction sector, particularly the supply and construction capacity issues, to meet the growing demand for housing.
Key Insights:
- Current data shows a slight increase in new apartment approvals in Germany, but a more substantial improvement is needed to meet long-term demand.
- A mountain of around 800,000 approved but not yet realized apartments, the so-called construction backlog, exists. Industry experts question the financeability of a significant portion of this backlog under current conditions.
- After years of declining approval numbers, economists see a potential trend reversal due to increased purchasing power and lower interest rates. However, the construction activity is expected to remain subdued initially.
Sources:
- Bitkom
- Welt
- The new federal government in Germany aims to boost housing construction by streamlining approval processes, promoting modern methods, and designating more building land, as part of the "Speed, Technology and Tolerance" initiative, to address the current housing backlog and meet rising demand.
- With the increasing focus on housing construction and potential improvement in vocational training in the construction sector, investing in real-estate and related vocational training programs might present opportunities for community members to contribute to and benefit from Germany's housing market recovery, strategically positioning themselves in the housing-market and finance landscape.
