Worst start for the construction industry in 14 years

The order crisis in the German construction industry has intensified with the worst start to the year in 14 years. New business in the main construction industry was 5.8 percent weaker in January than in the previous month, adjusted for inflation, as the Federal Statistical Office announced on Friday. Compared to the same month last year, there was even a decline in orders of 21 percent. "The last time there was a major decline at the beginning of the year was in January 2009," the statisticians emphasized. At that time, the minus had been 21.8 percent.

Rising interest rates and higher construction costs are considered to be the reasons for the falling demand. "Investors are stepping on the construction brakes at the beginning of the year," said Tim-Oliver Müller, Managing Director of the construction industry. "The sharp price and interest rate increases have further increased the uncertainty." The "shock paralysis" must soon be dissolved, as the order backlog is not long enough to fill the companies.

Housing construction is particularly affected

The slump is now having an impact on sales. In January, this was 8.3 percent lower in real terms in the main construction industry than a year earlier. The order backlog is also declining. At the end of 2022, it was 4.5 percent lower in real terms than in the same period last year. Not adjusted for inflation, the volume amounted to 68.3 billion euros.

The real order backlog fell most sharply in residential construction, where it fell by 9.3 percent. "This was the first decline in this type in a calendar year since 2009," it said. The downward momentum intensified over the course of the year.

Against the background of this development, the Federal Government has now abandoned its goal of 400,000 apartments being built annually. According to experts, the situation on the real estate market is currently dramatic: According to this, around 700,000 apartments will be missing in the next few years.

Prices fall for the first time in 10 years

Business and trade unions are demanding greater state support from the federal government. Politicians must focus more on densification in existing buildings in order to create affordable new housing, especially in conurbations, advises the German Institute for Economic Research (DIW).

Meanwhile, prices for residential real estate fell at the end of 2022 for the first time in twelve years. They fell from October to December by an average of 3.6 percent compared to the same period last year, as the Federal Statistical Office announced on Friday. This is the first decline since the end of 2010, when there was a minus of 0.5 percent.

Purchase prices for apartments and detached and semi-detached houses fell even more sharply in the first quarter of 2007 by 3.8 percent. Measured in the third quarter of 2022, prices fell by an average of 5 percent. "The decline in purchase prices is likely to be due to lower demand as a result of increased financing costs and persistently high inflation," the statisticians explained.

In 2022 as a whole, however, prices for residential real estate continued to rise, as there were still increases in the first three quarters: On an annual average, they rose by 5.3 percent. In 2021, with an increase of 11.5 percent, there had been the strongest increase since the beginning of the time series in 2000.

Differences between urban and rural areas

Both in the cities and in the rural regions, there were mostly declines at the end of the year. "The prices for detached and semi-detached houses fell more sharply than those for condominiums," according to the statisticians.

For example, one- and two-family houses in the independent cities fell by 5.9 percent compared to the same quarter of the previous year. In contrast, prices for condominiums in these cities fell by only 1 percent.

In the sparsely populated rural districts, one- and two-family houses were 5.5 percent cheaper, while condominiums were slightly more expensive with an increase of 0.1 percent. In the metropolises of Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf, prices for detached and semi-detached houses fell by 2.9 percent, while apartments had to be paid 1.6 percent less.

According to the Bundesbank, overvaluations in residential property prices continued last year. In the cities, residential property prices in 2022 were still between 25 and 40 percent above the justified level, as their economists found.