German Construction Crisis Intensifies: Cancelled Projects and Financial Distress
Cancelled building projects and financial distress among landlords and builders in Germany have hit their highest levels since reunification three decades ago, intensifying the construction crisis in the EU’s biggest economy.
Rising Interest Rates and Weaker Demand
- 20.7% of construction companies have been forced to scrap a project in August, up from 18.9% in the previous month.
- Construction companies reporting a lack of new orders rose to 44.2% in August, up from 40.3% in the previous month and 13.8% a year ago.
Financing Difficulties and Business Closures
- Almost 12% of residential construction companies are reporting financing difficulties — the highest level in 32 years.
- Some smaller construction companies that focus only on housebuilding are struggling to stay afloat.
Causes of the Crisis
- Soaring borrowing costs following an unprecedented rise in the European Central Bank’s policy rates.
- Inflation has sharply raised the cost of building new homes.
- Tougher energy efficiency regulations have reduced government subsidies for builders.
Insolvencies and Writedowns
- Several German developers have filed for insolvency in recent weeks.
- Big landlords such as Vonovia and Aroundtown have announced big writedowns of their property portfolios.
Drop in New Building Permits
- New building permits in Germany plunged 34% in the second quarter from a year earlier.
- Germany has witnessed a speedier drop in new permits compared to the wider eurozone.
Current Situation and Outlook
- German construction companies’ overall output remained flat in July from a year earlier.
- A rebound in civil engineering activity is compensating for the slump in German housebuilding activity.
- Many firms are relying on the current stock of orders acquired before the rise in interest rates.
- A majority of German building companies expect further declines in new business in the next six months.
Last year, only 295,300 dwellings were built in Germany, well short of the government’s target of 400,000 homes a year. The country is facing a shortage of 700,000 homes, according to the German Property Federation.