According to the Federal Statistical Office, the construction price of a conventional residential building increased by 2.8 percent in February compared to the previous year. This means that the price increase is the lowest since the start of the Ukrainian war. The annual increase was 4.3 percent in November, 6.4 percent in August and 8.8 percent last May. The highlight so far was May 2022 with an increase of 17.6 percent.

Some phases of construction, such as concrete work, carpentry and wood construction, have even become cheaper in the last twelve months. The prices that increased the most were those of earthworks (4.8 percent), those of finishing (4.7 percent) and those of carpentry (3.5 percent). Waterproofing and roofing work also became more expensive than average, at 3.1 percent. Leading the way, however, are heating and water heating systems, with an increase of 6.9 percent. This includes the installation of heat pumps, which has received a boost with the new Energy for Buildings Act.

Interest rates have fallen again since November

Construction prices are only one factor in the total cost of a new building. In second place are the interest rates on construction loans, because almost no one finances the construction of a house or even an apartment building 100 percent with their own capital. Also in this case the evolution is positive. After construction interest rates increased from summer 2022 to the end of last year from an average of 1.3 to 4.4 percent with a 15-year fixed interest rate, in line with interest rates key of the European Central Bank (ECB), have since fallen to 3.6 percent. For a construction project with a volume of 500,000 euros, this would equate to a saving of around 136,000 euros or around 15 percent over the entire term. With the same monthly payment, you could also pay off the loan about five years faster than you did six months ago.

No matter how good the current development is, it is no reason to start planning to build a house right away. From November to February, construction prices rose again by 1.2 percent, which extrapolates to an increase of 4.8 percent for the year as a whole, that is, a stronger increase again. On the contrary, interest rates are expected to fall this year. Analysts expect the ECB's first interest rate cuts in April or May. By the end of the year it could fall between 0.5 and 0.75 percent.

Why it is not worth building a house

However, housing construction remains at a very high level. The 2.8 percent increase from February 2023 to February 2024 is still above the headline inflation rate of 2.5 percent over the same period. And even if interest costs have fallen by around 15 percent from November to today, they are still 36 percent higher than before the ECB's interest rate change.

Here is an example calculation: a house with a construction price of 500,000 euros and a loan with an interest of 1.3 percent and an annuity of 6 percent would have cost you in total about 568,000 euros in 2022 and would have been paid after 18 years. Today construction costs would be around 11 percent higher, 555,000 euros, and interest rates have approximately tripled. With the same annuity you would have total costs of 858,000 euros, an increase of 290,000 euros or 51 percent. Furthermore, it would now take almost 24 years to pay off the loan.

The calculation example shows that the construction crisis in Germany is far from over. Only in March did morale among German real estate companies reach a new low, as the Ifo Institute reported in its monthly survey. “There is currently no glimmer of hope in housing construction,” says survey leader Klaus Wohlrabe. About 56 percent of companies reported lack of orders. With current development, fewer than 200,000 new apartments could be built in 2025, Felix Pakleppa, CEO of the Central Association of the German Construction Industry (ZDB), recently predicted in the Neue Osnabrücker Zeitung.

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