Germany is drifting into new building collapse

The long-standing construction boom in Germany is over. Although many construction companies are still busy, craftsmen are often fully booked. But that will change quickly in the coming months. Because the order books are empty.

In September, incoming orders in the main construction trades fell by 22.6 percent compared to the same month last year. According to the Federal Statistical Office, this was the strongest decline since February 2005.

There are some special effects, such as the extremely high construction prices and the particularly pronounced construction activity last year, which mean that the year-on-year decline is now particularly evident. In addition, according to the statisticians in Wiesbaden, the number of people working in the main construction trades increased again by 1.7 percent. It doesn't look like a crisis yet.

But the construction associations are still sounding the alarm. The Main Association of the German Construction Industry warns of a "slump in the construction industry". In residential construction in particular, things are no longer progressing. According to the Ifo Institute, 17 percent of housing construction companies are already affected by cancellations.

"The collapsing figures for orders and building permits show us how the toxic mixture of energy prices, inflation and interest costs is increasingly unsettling builders," says Felix Pakleppa, General Manager of the Central Association of the German Construction Industry (ZDB).

The builders are also particularly bothered by a circumstance that private house builders are also feeling: not only are the construction costs and material prices rising, but also the demands of politicians on the energy efficiency of new buildings.

At the same time, however, financing has become more expensive and subsidies have disappeared. The federal government canceled previous KfW funding programs, and the child benefit is also being phased out, with no successor plan in sight.

"This year, the standard for funding was tightened to Efficiency House 40," complains Pakleppa. From January 2025, new houses are to meet this strict standard, which can only be achieved with extensive insulation, own energy generation and heat recovery.

According to the ZDB, a normal single-family house is 30,000 euros more expensive than the previous KfW 55 standard, which will apply from January next year. "In order to advance housing construction and relieve builders, the promotion of private builders urgently needs to be reworked and special depreciation reintroduced in rental housing construction," demands Pakleppa.

The federal government has already decided to increase straight-line depreciation from two to three percent in the middle of next year. The construction industry will thus receive a boost in subsidies in this way. However, further funding will only be available in future for particularly high environmental standards in new buildings, emphasizes the Federal Building Ministry.

The department headed by Minister Klara Geywitz (SPD) will take over responsibility for construction subsidies from the Federal Ministry of Economics from January. The minister no longer wants to use the 1.1 billion euros planned in the budget for standards that apply anyway, but primarily for houses that have earned the "quality seal for sustainable buildings".

You get this seal, for example, when sustainable or recyclable building materials are used. "In the future, the entire life cycle of a building will be taken into account in all funding levels," says the Ministry of Construction.

Economists, such as Michael Voigtländer, real estate expert at the German Economic Institute (IW) in Cologne, think it is correct that normal new buildings are no longer additionally funded. "Basically, the new building should not be funded," says Voigtländer.

However, he qualifies: “We are currently in a difficult situation, construction costs are still rising and demand is falling. It is therefore to be feared that construction activity will decline overall.”

It is therefore wrong to raise building standards again right now. "This is associated with additional costs, but does little ecologically," says the economist. Increasing the Efficiency House 55 to 40 brings less CO₂ savings than energy-efficient renovations in existing buildings.

According to the Ministry of Construction, what the new funding should look like is still being worked out. 350 million euros are earmarked for families with low and middle incomes, 750 million for climate-friendly construction. Where the income limits will be is still open.

In any case, there shouldn't be anything like the widely spread Baukindergeld. On the contrary: Some families, who had planned the subsidy totaling 12,000 euros for each child, even get nothing, as it now turns out.

In the budget deliberations, the federal government has reduced the funds for the child benefit by over 18 million euros. The program will end at the end of the year.

This becomes a problem for some families if they have not completed their own home this year due to material shortages and construction delays. The Baukindergeld is only paid out during the term of the program and when the supported families have moved into the property.

Jan-Marco Luczak, housing policy spokesman for the Union parliamentary group, estimates that up to 20,000 families who had counted on the subsidy will get nothing: "The fact that the traffic light leaves families out in the rain is bitter and destroys trust in politics again. "

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