The German construction sector, specifically the residential housing segment, experienced a marginal improvement in sentiment during November, according to the latest data released by the Ifo Institute. The business climate index edged up from -22.8 to -21.0 points, a slight reprieve from the sustained negativity plaguing the industry.
While firms have marginally revised their assessment of their current situation, their outlook for the coming months remains subdued. Klaus Wohlrabe, head of Ifo’s surveys, cautioned against interpreting the uptick as a sign of genuine recovery. “The companies in residential construction are currently less pessimistic” he stated, “but the future prospects remain unchanged and weak.
The persistent shortage of new orders continues to be a significant burden on construction firms. The proportion of companies reporting insufficient order books has risen notably, jumping from 44.4% to 47.0%. Even projects already in the planning stages are increasingly vulnerable, with the share of builders citing contract cancellations dramatically up from 8.0% to 11.0% – the highest level recorded since October 2024.
This growing instability underscores deeper systemic issues within the German housing market, fueled by rising interest rates, restrictive lending conditions and ongoing bureaucratic hurdles impacting project approval timelines. Critics argue the government’s response, focused primarily on incentivizing public sector construction, has failed to address the underlying constraints impacting private sector developers, leaving a widening gap between the urgent need for affordable housing and the industry’s capacity to deliver. The increased frequency of project cancellations highlights the fragile nature of investment confidence and raises serious questions about the feasibility of achieving the government’s ambitious housing targets without a more comprehensive and targeted intervention.
