German Housing Construction Remains Fragile Amid Rising Cancellations

The German housing construction sector remains fragile, with an increasing number of companies reporting project cancellations. In July, the proportion of affected firms rose to 13.1%, up from 11.4% in June, according to a survey by the Ifo Institute. Klaus Wohlrabe, head of Ifo surveys, noted that while the order situation is slowly improving, the rise in cancellations indicates the precarious state of recovery in the sector.

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The order situation is slowly moving in the right direction, but at the same time, more projects are being canceled again.

Despite the concerning trend in cancellations, the overall business climate sentiment in housing construction saw a slight improvement at the start of the second half of the year. The business climate barometer increased from minus 30.6 points in June to minus 29.3 points in July. Companies reported better current conditions, although future expectations remained pessimistic. Wohlrabe suggested that the increase in building permits is beginning to impact the industry, but a broad recovery is still a long way off.

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This shows how fragile the recovery in housing construction continues to be.

On a positive note, the shortage of orders has eased slightly, with the percentage of companies reporting insufficient orders decreasing from 43.7% to 41.2%. The material supply situation has also improved, with the share of companies facing bottlenecks in precursor products dropping from 9.7% to 8.5%. However, experts estimate that only 185,000 new homes will be completed this year, marking a 15-year low. The German government aims to counteract this trend with initiatives like the "Bauturbo" to accelerate construction and increase social housing funding.

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The increased building permits are apparently slowly arriving in the industry.