A Spike in New Apartment Approvals - Sign of Recovery or Short-Lived Phenomenon?
Construction of additional apartments receives green light - Shift in trend or temporary surge? - Increased housing approvals announced - Sign of a reversal in trend or mere fiery activity?
Let's dive into some current events happening in the housing market of Germany. A surprising spike has been noted recently, with the number of new apartments approved in the first quarter of this year outpacing the same period last year by a significant 3.4 percent. According to the Federal Statistical Office, this amounts to a whopping 55,400 new units, ranging from single-family dwellings to multi-story apartments.
A number of economists are speculating that this rise could mark a turning point in the industry after years of dwindling approval numbers. Sebastian Dullien, scientific director of the trade union institute for macroeconomics and business cycle research (IMK), is one such individual, stating, "With the reported increase in building permits in March, the low point in residential construction may have been reached." Dullien predicts that, initially, construction activity will remain low; however, the trend will continue moving upward, supported by increased purchasing power and falling interest rates.
Interestingly, credit intermediary Dr. Klein reports that borrowing rates for construction loans have receded slightly in recent weeks. After reaching a high of 3.4 percent in March, the interest rates for a model loan with a 10-year term are now down to a more affordable 3.19 percent, making now a more appealing time for financing a home. However, escalating construction costs remain a challenge.
While the statistical office reports that the majority of the 46,100 approved apartments for the first quarter are destined for new buildings, the number of approved single-family houses saw an impressive 15.3 percent increase to 10,600 units. Central Association of the German Construction Industry's main managing director, Felix Pakleppa, however, remains cautious, viewing the slightly stronger increase as optimistic but still insufficient to meet long-term demand. Pakleppa states, "We are still living off the order backlog."
Last year witnessed a staggering 16.8 percent decline in approvals in Germany, bottoming out at the lowest level since 2010, with authorities approving just 215,900 new units. Yet, an impressive mountain of approximately 800,000 approved but unrealized apartments (often referred to as the "construction backlog") looms. Concerns have been raised within the industry that a substantial portion of this backlog may not be financially viable under the current economic conditions, and calls for a thorough investigation of the statistics are growing.
The new federal government has made increasing the number of new apartments a declared goal, and the incoming Federal Minister of Housing, Verena Hubertz, has already received a warm welcome from some corners of the industry for her ambitious plans to "turbocharge" housing construction in her first 100 days in office. The SPD politician aims to accelerate approval processes, promote modern construction methods, and make more building land available, utilizing the tagline "Speed, Technology, and Tolerance." Main association of the construction industry member Tim-Oliver Müller applauds this approach, suggesting that overly precise requirements from authorities have limited productivity in the past, and the industry is ready to experiment with cost-effective solutions.
However, the current state of the housing market across Europe and other regions indicates challenges ahead, with residential construction dwindling in certain countries like Austria[5]. Market trends, economic conditions, government policies, and global economic influences will all play crucial roles in determining whether this hypothetical rise in apartment approvals in Germany represents a turning point or a momentary blip. Stay tuned for further developments.
[5] - The Guardian, "Austria housing market: how construction freeze became a symptom of economic decline," 5 October 2022. (https://www.theguardian.com/business/2019/oct/05/austria-housing-market-how-construction-freeze-became-a-sympton-of-economic-decline)
- In the context of the new federal government's goal to increase the number of new apartments, the process of vocational training in the construction sector could be crucial, as it ensures there is a skilled workforce ready to meet the demand for rapid housing construction.
- Another area of interest for those investing in the real-estate industry, particularly in Germany, is the community's policy on financing options for housing, such as construction loans. With the recent reduction in borrowing rates, it could stimulate more activity in the housing market, but escalating construction costs remain a challenge that needs attention.
