The Ifo Institute in Munich has projected a significant decline in residential construction in Germany, estimating that new apartment builds could plummet to just 175,000 by 2026, a drop of over 40% from the nearly 300,000 units constructed in 2022.

High inflation and rising interest rates are exacerbating the construction crisis, leading to skyrocketing costs that hinder market recovery and contribute to a housing shortage.

The GdW housing industry association has described the current construction situation as a 'tragedy without end,' criticizing the government for its lack of effective action to address the ongoing crisis.

A recent survey by GdW revealed that two-thirds of its member organizations are unable or unwilling to initiate new housing projects this year due to prohibitive costs and insufficient permits.

The German Federal Statistical Office reported a staggering 44% decrease in building permits in May 2024 compared to the same month in 2022, indicating a severe slowdown in new housing projects.

The IW Cologne research institute estimates that Germany needs to construct 372,000 new apartments annually until 2025, highlighting a significant gap between demand and the projected decline in construction.

As construction activity declines, tenants in urban areas are likely to face a challenging housing market characterized by high costs and limited availability.

In response to the construction crisis, the German government plans to implement significant regulatory changes, including a streamlined approval process to facilitate new building projects.

One of the proposed changes is the introduction of the 'Building Type E' concept, which aims to simplify the building process while maintaining essential safety and environmental standards.

This downturn in housing construction is not only a German issue; similar declines in building permits are being observed across Europe, with Euroconstruct forecasting a drop in new builds across 15 Western European countries.

Germany's failure to meet its construction goals last year, with nearly 300,000 new apartments not built, underscores the urgency of addressing the current housing crisis.