400,000 new apartments are to be built in Germany every year to meet demand. But the rising prices and higher financing costs are a burden for builders.
Rising prices are causing problems for the construction industry, while at the same time houses and apartments continue to become more expensive. “We are concerned about the order development in residential construction,” said Felix Pakleppa, general manager of the Central Association of the German Construction Industry, on Friday. According to data from the Federal Statistical Office, the main construction trades recorded a higher volume of orders in July than a year earlier due to higher prices. Price-adjusted (real), however, order intake was 5.8 percent lower.
In real terms, for the first seven months of 2022 together, there was a decline in incoming orders of 3.8 percent compared to the same period of the previous year. The main construction trade includes the construction of buildings (structural engineering) as well as roads, railway lines and lines (civil engineering). According to information from the construction industry association, the decline in residential construction alone in the first seven months was around 9 percent in real terms compared to the same period last year.
“Private home builders in particular are reaching the limits of what they can afford in view of rising financing and living costs,” said Pakleppa. “The announced subsidies for new buildings amounting to one billion euros for the coming year are not nearly enough for the federal government’s goal of building 400,000 apartments a year.” An energy price cap is also necessary.
Residential real estate prices continued to rise in the second quarter. Houses and apartments rose in price for the fifth quarter in a row by more than ten percent compared to the same quarter in the previous year. In the period from April to June 2022, the prices for residential real estate rose by an average of 10.2 percent compared to the same period last year, as reported by the Federal Statistical Office.
Largest price increase in sparsely populated rural counties
The authority recorded the largest price increase within a year in sparsely populated rural districts: There, single and two-family houses were 13.6 percent more expensive than in the second quarter of 2021, and condominiums cost 11.7 percent more.
In the top cities of Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf, prices for single and two-family houses rose by 12.2 percent and for condominiums by 10.6 percent within one year. There was a slight relaxation in urban circles. The inflation rate for houses there was 7.8 percent for the first time since the first quarter of 2021 in the single digits. Real estate buyers had to pay 7.3 percent more for apartments than in the same quarter of the previous year.
In view of rising building interest rates, expensive building materials and delivery bottlenecks, experts expect the real estate boom in Germany, which has been going on for more than ten years, to slow down.