Energy Crisis Exacerbates Germany's Housing Problem

The authorities in Germany issued 3 percent fewer housing permits in the first eight months of 2022 than in the same period last year, the Federal Statistical Office (Destatis) said.

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Housing and construction have already been in a "perfect storm since the beginning of the year at the latest," a spokesperson of the Federal Association of German Housing and Real Estate Companies (GdW) said, adding that the Ukrainian conflict is now turning this into a "violent hurricane."

Only 244,000 construction permits were issued in Germany between January and August, Destatis said. The government's annual housing construction target is 400,000, including 100,000 social units.

Currently, so many problems are piling up and so many crises are overlapping. Supply chain problems due to the COVID-19 pandemic, as well as a shortage of skilled workers and materials, are now exacerbated by "price explosions."

Driven by soaring energy prices, annual inflation in Germany rose to a record 10 percent in September. Prices for household energy rose particularly sharply. Natural gas was 95 percent more expensive than last year and prices for heating oil more than doubled.

Europe's largest economy is facing a rising "wave of cancelations" in residential construction as one out of six companies was affected in September, according to the Institute for Economic Research.

"With skyrocketing material and energy prices, as well as the rise in financing interest rates, planning certainty is gone and construction costs continue to climb," ifo expert Felix Leiss said last week.

Despite the numerous problems, Germany wants to stick to its housing targets. This is "the right thing to do," Chancellor Olaf Scholz said at a press conference on affordable housing.

To achieve its goals, the government has unveiled a set of measures, including making serial and modular construction easier and increasing support for home ownership for young families. State funding for social housing has been increased to a record US$14.3 billion by 2026.

"Many of the measures adopted make sense in the medium term for boosting affordable housing construction in Germany," the GdW spokesperson said. However, his organization considers the government's target of 400,000 housing units per year "wastepaper."

The German Ministry for Housing, Urban Development and Building (BMWSB) defended the expansion targets. "The demand exists and is growing," said a ministry spokesperson, referring to 847,000 housing units in the construction backlog.