German housing slump makes builders more pessimistic than ever

CANCELLED projects and insufficient orders have intensified problems for Germany’s home builders in a sign that a recovery in the country’s housing market is still remote.

In December, 56.9 per cent of German residential construction companies said order books were too low, up from 49.1 per cent the previous month, according to a survey published by Munich-based Ifo institute on Wednesday (Jan 10). Business sentiment among builders dropped to -56.8 points, the lowest level since records began in 1991 as more than a fifth of builders complained about cancelled projects.

“The exceptionally weak expectations show that companies currently have no hope,” said Klaus Wohlrabe, head of surveys at Ifo. “The prospects for 2024 are bleak.” 

While central banks have paused rate hikes, costs remain high for residential projects. A lack of building threatens to intensify shortages in major cities and stoke social tensions, as Chancellor Olaf Scholz’s government falls short on promises to accerate home construction.

Rising material and financing costs as well as sluggish political incentives to boost construction made 2023 an exceptionally difficult year for home builders. 

“Only the high order backlog with which the companies started the crisis and the long project durations had prevented an even greater slump in construction activity,” Wohlrabe said.

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German housing crisis deepens as slump in new orders hits record

Slumping home prices adds to the headwinds by making residential investments riskier. Pricing dropped 0.2 per cent in the fourth quarter and by almost 5 per cent in 2023, according to a study published by Immowelt on Wednesday. At least for the first half of 2024, there is little hope for a sudden recovery, the online broker said. BLOOMBERG