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Germany’s Housing Shortage Set to Intensify

Germany’s housing shortage is set to intensify as the number of new building permits plummeted by 31.9 percent year-on-year in April, the Federal Statistical Office (Destatis) has said.

After nearly a year of continuous decline, only 21,200 new homes were approved for construction in Europe’s largest economy in April, according to the figures published on Friday. It was the sharpest decline since March 2007.

“High costs for construction materials and increasingly poor financing conditions remained the main contributors to the decline in construction projects,” Destatis said in a statement.

In an effort to push inflation in the eurozone back below its 2 percent target, the European Central Bank (ECB) on Thursday raised its key interest rate to 4.0 percent in an eighth hike.

“This renewed increase in the key interest rate could bring new construction to a complete standstill,” warned Oliver Wittke, chief executive of the German Property Federation (ZIA), adding that people in Germany “who are desperately looking for housing are the ones who will suffer.”

According to mortgage broker Interhyp, construction interest rates this month range between 3.5 and 4 percent. “The interest rate peak is indeed foreseeable. However, we still consider speculation on an interest rate turnaround and a looser monetary policy in June to be premature,” the mortgage broker’s latest interest rate report states.

Germany is already facing a shortage of 400,000 apartments this year, according to the ZIA spring report. By the middle of the decade, the shortage is expected to grow to as many as 700,000.

To address the issue, the German government wants to build 400,000 new homes each year, including 100,000 social housing units. In 2022, the number of completed homes stagnated at 295,300, according to official figures.

Experts do not expect the targets to be met this year or in the coming years either. According to an estimate published by the ifo Institute for Economic Research on Friday, the number of annual completions would instead even fall to 175,000 by 2025.

Rents are also rising, leaving more and more people in Germany financially overburdened, warns the country’s tenants’ association (DMB). If the current trend continued, the number of households spending 40 percent of their money or more on rent would exceed five million in the next few years.

“Too few apartments are being built, and those that are being built are not aimed at those who need them most,” DMB president Lukas Siebenkotten said last month, adding that rents would rise “significantly faster than wages.”

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