Residential construction project cancellations hit new high in Germany

A residential construction site in Germany (Image: SuSanA Secretariat, CC BY 2.0, via Wikimedia Commons)

Cancellations of residential construction projects in Germany hit a new high in August as a crisis in the sector there intensifies.

That’s according to new figures from the Munich-based economic institute Ifo.

A survey by Ifo found that 20.7% of residential construction companies in Germany reported cancelled projects, up from 18.9% in the previous month.

Klaus Wohlrabe, head of surveys at Ifo, said, “Residential construction cancellations are piling up to a new high. We haven’t seen anything comparable to this since the survey began in 1991. The uncertainty in the market is huge.”

Restrictions in residential construction in Germany (Source: Ifo Business Survey, August 2023)

He said that the rapid rise in construction costs and higher interest rates meant that many projects that were still profitable in early 2022 are no longer viable.

He also pointed to a scaling back of subsidies because of tighter energy regulations, which is putting a strain on builders’ calculations.

While some businesses do still have full order books, 44.2% of participants in the survey reported a lack of orders, up from 40.3% in July. At the same time last year, the share was only 13.8%.

Wohlrabe added, “Some businesses are already struggling to keep their heads above water. Currently, 11.9% of residential construction companies report financing difficulties. That’s the highest proportion for over 30 years.”

A majority of businesses fear further declines in business in the coming six months, with expectations at an “exceptionally low level” of -60.1 points, according to the Ifo.