Rising permits conceal Germany's looming construction cliff

Germany is issuing far more building permits than a year ago, but anyone reading this as a sign of revival in the country’s construction industry is engaging in wishful thinking. Permits jumped nearly 60% in September to 24,400 units, the strongest monthly figure in years. Over the first nine months of 2025, approvals rose 11.7% to 175,600 dwellings. Yet this apparent surge collides with a construction sector reporting weak demand, declining sentiment and a pipeline so depleted that completions are forecast to fall sharply through 2026. For investors, the message is clear: permit momentum is welcome, but the real economy of building remains stuck at a low ebb.

Much of the September increase reflects a base effect. September 2024 saw only 15,300 permits, the lowest since 2012. Behind this distortion lie uneven patterns. Single-family homes grew 17.4% to 33,300 approvals in January–September. Multi-family dwellings, critical for urban markets, rose 13% to 93,100 units, an improvement but still far below what would ease shortages. Two-family homes fell slightly and conversions increased only modestly. Sector groups have urged caution. GdW president Axel Gedaschko noted that construction is climbing upwards from “a very low level”. ZIA managing director Aygül Özkan called the improvement positive but pressed for a modernised Building Code. The question remains whether today’s increases signal a real shift or simply represent a catch-up phase after the 2023 rate shock.

The deeper problem is the lengthening lag between permission and completion. The average period now stands at 26 months, and 34 months for multi-family apartments. This timeline has stretched as developers postponed or abandoned projects during the interest rate spike. It also means the current rebound cannot repair the pipeline. The German Economic Institute (IW) expects completions to fall to around 235,000 units in 2025 and 215,000 in 2026, down from 252,000 last year. IW economist Ralph Henger said the decline is unavoidable, since completions reflect approvals from earlier years. The trough in 2022 and 2023 is already locked into the next two years of output. Even if approvals continue rising, the impact will only be felt in 2027.

A sector waiting for real work to begin

Recent Destatis data showed a 7.7% rise in new orders in September, the highest in more than three years. Residential construction orders rose more than 10%, civil engineering increased 13.2% and building construction grew 1.7%. On paper, these numbers suggest the cycle wants to turn. The industry does not yet believe it.

Sentiment across construction firms continues to deteriorate. The Ifo business climate index for main construction fell to minus 16.2 in November from minus 15.3 in October. For housing construction specifically, the index dropped from minus 22 to minus 23. Companies highlighted weak demand, underutilised capacity and cancellation rates holding at around 8%.

Klaus Wohlrabe of the Ifo Institute said there is “still a long way to go”, noting that a lack of orders remains a key obstacle. The proportion of companies reporting underutilisation fell to 44.4% from 46.7%, the lowest in around two years. Wohlrabe emphasised the large backlog of dormant permits as a visible bottleneck. Only when those plans turn into active sites will order books improve in a lasting way.

Construction Minister Verena Hubertz has described the recent data as evidence that “it is finally looking up”. From mid-December, the federal government will release €800m to help clear the construction backlog. The Bau-Turbo programme aims to speed up planning. New KfW-supported schemes are intended to help younger and lower-income families enter home ownership. Hubertz has also urged supermarket chains to use store roofs for housing and called for more conversions of unused commercial sites. Industry groups remain unconvinced. “Approved does not mean built,” warned IVD president Dirk Wohltorf, pointing to low completion numbers. Gedaschko repeated that stabilisation will only turn into real progress if planning speeds up and economic conditions improve.

Developers diverge as investors look for signals

Market behaviour reflects this uncertainty. Instone Real Estate is moving countercyclically, buying land across nine metropolitan regions for roughly 2,100 units. Half the projects are earmarked for joint ventures with institutional partners, giving Instone flexibility while preserving liquidity.

Large landlords have chosen the opposite course. LEG Immobilien has halted all development, arguing that new-build returns cannot compete with existing portfolio yields. Vonovia continues selectively but remains cautious. The split highlights a central reality: developers can exploit pricing opportunities in land, while listed landlords face IRR comparisons that make new construction difficult to justify.

Investors need to be aware of what this means. The rise in permits is encouraging but insufficient given Germany’s housing shortage and the length of the construction cycle. Multi-family approvals need a sustained increase before urban markets see real relief. Order intake, cancellation rates and financing conditions now matter more than political messaging. With a completion cliff ahead in 2026 and beyond, rents in many regions are unlikely to soften. Development economics will remain tight. Germany may be approving more future housing, but it is still some distance from building enough of it.