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  • Business climate in housing construction dropped to record low
  • Outlook for the coming months is ‘bleak,’ Ifo’s Wohlrabe says

Sentiment among homebuilders dropped to the lowest level since records began in 1991 as Germany’s construction slump threatens to intensify already severe housing shortages.

Business climate in residential construction fell to minus 59 points in January from minus 56.9 points the month prior, according to a survey published by Munich-based Ifo on Tuesday. The outlook for German builders is also deteriorating, with business expectations dropping to minus 68.9 points from minus 64.7 points.

“Residential construction is still facing the double whammy of a lack of new orders and ongoing project cancellations,” said Klaus Wohlrabe, head of surveys at Ifo. “The outlook for the coming months is bleak.”

As the construction sector continues to slump, housing shortages are set to get worse and the goal of Chancellor Olaf Scholz’s coalition government to build 400,000 homes a year is looking increasingly remote.

The German Property Federation estimates that there is already a shortfall of more than 500,000 apartments in the country, a gap that could widen significantly in the next few years due to a lack of building activity.

While order books slightly improved in January, still more than half of builders surveyed complained about a lack of business. Conditions for existing projects eased as well, with 17% of homebuilders reporting cancellations, down from 22% the previous month.

Still, high interest rates and elevated construction costs mean a trend reversal is not yet in sight, Ifo’s Wohlrabe said.

Written by:  @Bloomberg

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