Building permits up in Germany, but Iran war feared to slow trend

Building permits were up in Germany in the first quarter, according to official figures published on Monday, in what marked a ray of hope for the country struggling with a sustained housing crisis and soaring rents.

In March, permits were granted for 21,800 flats in both new and existing buildings, up 11.5% on the same month last year, the Federal Statistical Office said in a statement.

A total of 63,500 units in new and existing buildings were authorized between January and March, 14.6% more than in the first quarter last year.

The number of permits granted rose particularly sharply for new semi-detached homes, which were up 23.2%, and flats in new multi-unit residential buildings, up 14.9%.

Building permits are a key indicator for the housing construction sector, which has been struggling due to rising interest rates and construction costs. 

Affordable housing is in short supply in Germany, particularly in urban areas. The government of Chancellor Friedrich Merz has vowed to boost construction by speeding up the authorization process, and has reactivated support programmes for energy-efficient building.

While the latest figures were a sign of encouragement for the sector, rising costs and rates due to the Iran war are threatening to hamper the recovery.

“The number of new building permits issued in March shows that the German construction industry maintained robust momentum during the first month of the war in Iran," said Sebastian Dullien from the Macroeconomic Policy Institute affiliated with the Hans Böckler Foundation.

However, the war in Iran launched by the United States and Israel on February 28 is likely to significantly dampen the recovery, he added.

Since the beginning of March, interest rates on 10-year mortgages have risen by 0.3 percentage points, making housing construction more expensive, Dullien said. In addition, rising inflation due to rising energy prices is having an impact, weighing on incomes which in turn leaves less opportunity to build a home, he noted.

The Central Association of the German Construction Industry also cautioned against premature optimism.

“If we want to meet demand in the country, we would need at least 10,000 additional authorizations – every month,” said chief executive Felix Pakleppa.