Germany's housing construction crisis deepens!

The Institute for Economic Research (Ifo), one of Germany's leading economic think tanks, published the results of the August survey on the projects of construction companies. Accordingly, 20.7 percent of companies reported that their projects were canceled in August. The said rate was 18.9 percent in July. In Ifo's statement, it was stated that many projects that were still profitable at the beginning of 2022 are now no longer economically viable due to rapidly rising construction costs and significantly rising interest rates.

According to the survey, while some companies' order books are still full, 44.2 percent reported a lack of orders already. A year ago, this figure was 13.8 percent. Klaus Wohlrabe, Director of the Ifo Survey Center, said, "Cancellations in housing construction are climbing to a new high. We have not observed a comparable situation since the survey began in 1991. The uncertainty in the market is too great." "Some companies are already up to their necks in water," Wohlrabe said, noting that the reduction in financing due to stricter energy saving requirements is also straining builders' accounts.

Stating that 11.9 percent of residential construction companies are currently experiencing financing difficulties, Wohlrabe said, "This is the highest value in the last 30 years." On the other hand, the Association of Real Estate and Housing Companies (BFW) demands countermeasures from the German federal government due to the crisis. "The historic high in cancellations and the massive lack of orders prove that our warnings of collapse are now coming true," said BFW President Dirk Salewski. This economic fire curve will continue to rise. If action is not taken soon, sick housing will be dead."

BFW stated that construction companies in the country need lower land costs, looser financing conditions and less bureaucracy in approval processes. Meanwhile, the European Central Bank (ECB) is struggling with rising interest rates against high inflation. This is making investments in construction and other sectors more expensive, slowing the economy. Germany's economy shrank by 0.4 percent in the last quarter of last year and 0.1 percent in the first quarter of the year, but failed to grow in the second quarter of the year.

Numerous crises in recent years, such as the Covid-19 pandemic, supply chain disruptions and the Russia-Ukraine war, have exposed the weaknesses of the German economy, while the ability of many countries, especially China, to increasingly produce goods imported from Germany and high inflation and rising interest rates make it even more difficult for the German economy to grow. Slowing global growth, declining exports, high energy prices, falling industrial production and consumers' struggle to cope with rising inflation are also having a negative impact on the German economy. Ifo expects a contraction of 0.4 percent in the German economy this year, while the Kiel Institute for the World Economy (IfW) expects a contraction of 0.5 percent.