Germany residential construction declines, rate cuts have yet to help

LONDON (ICIS)–Despite a housing crisis in many of its cities, Germany’s new residential housing continues to decline.

• Permits fall
• Building decline hurts economy
• Benefits from interest rate cuts have not yet kicked in

Residential construction permits continued to fall in August, according to the latest data by the country’s federal statistics agency on Friday:

• Permits fell 6.8% year on year to just 18,300 in August.
• For the first eight months, permits were 141,900 – down 19.3% year on year from 175,800 in the year-earlier period.

Permits already fell sharply last year. Before 2023, they averaged 240,000/year, but even that was low compared with a government target, announced in 2022, of 400,000 new dwellings each year, construction industry officials said.

TRADE GROUPS
Construction industry trade group BFW Bundesverband Freier Immobilien- und Wohnungsunternehmen said that the situation in building and construction was “precarious”, not only for builders but for the overall economy.

About 6.6 million jobs were linked to building and construction, a sector that was as important as the auto industry for the country’s overall economy, the group said.

Residential construction “is the key to economic growth in many other industries,” BFW said, adding that the government needed to act decisively to stop the sector’s “crash”.

Another group, Zentralverband Deutsches Baugewerbe (ZDB), said that despite government measures, residential housing was not improving

The construction industry hopes that the government will take additional measures after a “residential construction summit” (Wohnungsgipfel) scheduled to be held in Hamburg in December, ZDB added.

A third trade group, Hauptverband der Deutschen Bauindustrie (HDB), was also pessimistic.

Permits have now been falling for 28 months and pretty much everything that needed to be said about the decline has been said, HDB noted.

The industry had made many suggestions to government to turn things around, with no effect, it added.

INTEREST RATES
Munich-based economic research group ifo said that the interest rate cuts by the European Central Bank (ECB) have not yet had any impact on Germany’s residential housing.

Instead, interest rates on loans for households for residential construction remain high, the group said.

In ifo’s September survey of residential construction, 52.9% of building and construction companies reported that order shortages worsened, compared with August.

In a positive development, however, fewer orders were canceled than in August.

The overall business climate in residential construction ticked up month on month, but “it would be going too far to speak of a glimmer of hope,” ifo said, adding, “The situation in residential construction remains serious.”

According to German chemical producers’ trade group VCI, domestic chemical sales into the construction sector fell 3.9% year on year in the January-August period.

The housing market is a key consumer of chemicals, driving demand for a wide variety of chemicals, resins and derivative products, such as plastic pipe, insulation, paints and coatings, adhesives and synthetic fibers, among many others.

Please also visit the ICIS construction topic page and also visit Macroeconomics: Impact on Chemicals.

Thumbnail photo source: ZDB