German builders and engineers are warning that the collapse of the coalition government earlier this month is heaping further pressure on a construction sector already in crisis.

Firms warn that the abrupt end of the so-called 鈥渢raffic light鈥� coalition 鈥� and the announcement that a 鈥榮nap鈥� election is to be held on 23 February - is likely to lead to months of political vacuum, compounding one of the worst construction slumps the country has seen in a generation.

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鈥淭he end of the traffic light coalition and now several months of waiting, uncertainty and stalemate until a new government is formed after the federal election will make the low even worse,鈥� says Michael Gilka, general manager of Germany鈥檚 national association of medium-sized construction companies (BVMB). 鈥淎nyone who wants to govern this country needs a plan to combat the slump in housing construction.鈥�

For the past three years, Germany has been governed by a fragile coalition of three parties which are not traditionally allies: the Social Democrats (red), the liberal Free Democratic Party (yellow) and the Green Party. SDP leader Olaf Scholz has held the job of Chancellor and Christian Lindner, leader of the fiscally conservative FDP, was finance minister.

On 6 November, that all fell apart when Scholz fired Lindner over a dispute over loosening the fiscal rules limiting government debt, leaving the other two parties still in power but without a majority in the Bundestag, facing a political gridlock.

Elections to take place on 23 February

This means that until the election takes place on 23 February, politicians have little power to pass any new measures. Moreover, even after that election takes place, the nature of Germany鈥檚 federal electoral system means that any potential winner is likely to then spend months brokering a new coalition government before any major new political decisions can be made. 

The ensuing stalemate means that the government is unlikely to pass its draft 2025 budget. If that happens, monthly spending allocations from 2024 would be replicated next year but proposals for a stimulus package for the country鈥檚 economy, higher spending on affordable housing and a funding programme for rail, road and bridge improvements could be stuck in limbo.

The news comes as another blow to German housebuilders and real estate companies, already reeling from the country鈥檚 sluggish economy, spiralling building materials costs, rising interest rates, and disruption to the supply chain caused by war in Ukraine. It also causes problems for the wider construction industry, which until now has not been as badly affected by the country鈥檚 housing crisis.

In Germany, the construction sector accounts for around 12% of GDP and employs something in the region of a million construction workers.

Political stalemate 

鈥淭he already poorly construction economy is at risk of being further damaged by the failure of the government and also the 2025 federal budget,鈥� says Felix Pakleppa, general manager of the Central Association of the German Construction Industry (ZDB). 鈥淢oney for funding programs in housing construction, for the renovation of crumbling bridges and roads, and for the expansion of the rail network are in danger of running out.鈥�

鈥淕iven the difficult market situation, it is important that funding stops do not create further uncertainty. This would set us back further in housing construction, where every apartment is urgently needed. The people in this country are desperately looking for affordable housing and must not be the victims of the government crisis.鈥�

The draft budget had included plans to increase Deutsche Bahn鈥檚 equity capital by 鈧�4.5 billion (US$4.8 billion) which the German state railway company plans to use as part of a turnaround plan of 40 major construction projects aimed at getting its notoriously unpunctual trains running to schedule again.

The fall of the government and disagreements over Germany鈥檚 decade old debt brake or 鈥楽chuldenbremse鈥� which limits the federal government鈥檚 budget deficit to 0.35% of the country鈥檚 annual GDP, are also likely to mean that other major construction issues are kicked into the long grass. These include the need for renovation or reconstruction for more than 4,000 motorway and road bridges across the country. In September, two sections of the four-lane Communist-era Carola Bridge in Dresden collapsed into the River Elbe.

The collapsed Communist-era Carola Bridge in Dresden, Germany, was completed in 1971 (Image: State Capital of Dresden)

鈥淚n my view it is important to take on more debt in order to invest in the country,鈥� Sascha Steuer, managing director of the German Association of Consulting Engineers told Construction Briefing. 鈥淲e have a big problem with ageing infrastructure. We need to be repairing or rebuilding 400 bridges a year but lack of funding means that in recent years we have come nowhere near meeting this target. It would not surprise me if, over the next 48 months or so, some city mayors take the decision to close bridges to traffic.鈥�  

He adds that German bureaucracy is also hampering the country鈥檚 construction efforts. 鈥淩ebuilding the bridge which collapsed in Dresden is likely to take eight years. The actual construction of course makes up just one and a half or two years of that. The rest of that time is spent in things like consultation with local residents, nature assessments and getting planning consent. And this bridge is one of the two most important bridges in the city. We believe that there should be a new law that if a bridge cannot be used then it can be re-built immediately.鈥�

While rising construction costs and interest rates have slowed property markets across Europe, German residential development has been hit particularly hard. This is partly the result of fifteen years of frenetic corporate investment in the country鈥檚 private rented sector 鈥� the largest in Europe 鈥� with landlords and pension funds using cheap debt to finance what they considered to be safe investments. Firms also argue that they are victims of over regulation and hampered by skilled worker shortages.

Housing construction slows

German chancellor Olaf Scholz came to power in December 2021 promising to help solve the country鈥檚 housing crisis by building 400,000 homes each year 鈥� a fairly modest number considering that experts including the German Property Federation (ZIA) believe the country is facing an annual shortage of around 700,000 homes.

Since then, the number of construction starts has plummeted dramatically.

In 2022, the German state issued building permits for 354,400 dwellings, according to the German Federal Statistical Office (Destatis), a 6.9% decline on the previous year.

By 2023, that number had fallen by more than a quarter to 260,200. And this year the numbers look even worse. In the first nine months of 2024, the state issued just 157,200 building permits while the number of new permits issued fell in September to its lowest level since January 2012.

鈥淣ot only is housing construction going downhill - it is going downhill even faster than before,鈥� adds the BVMB鈥檚 Gilka. 鈥淭his is evident from the latest economic data. We are observing the development with great concern. The bottom is still a long way from being reached. We expect housing construction to be even worse in the coming months.鈥�

The number of building permits issued each month by the German government. Souce: Destatis

And, since the collapse of the government, construction experts say more and more of the country鈥檚 construction industry is coming under pressure. While orders for construction work linked to energy transition or data centres remain strong, the German Construction Industry Association, Bauindustrie, reports a 鈥渕uted downturn鈥� in commercial building construction in 2024 and 2025.

鈥淭his time it鈥檚 not just about housing construction, but also about the rest of the construction industry,鈥� says Tim-Oliver M眉ller, general manager of Bauindustrie. 鈥淐omplaints about a lack of orders are now becoming noticeable in the books of our construction companies. Fewer and fewer projects are being advertised and launched. Given our dilapidated infrastructure, this is a dangerous development.鈥�

According to Destatis, the total number of corporate insolvencies across Germany increased in the first six months of 2024 to 10,704, a 24.9% rise compared with the same period a year earlier.

It estimated that companies in the property and construction industry filing for insolvency accounted for 47.4 of every 10,000 companies in Germany in the first six months of the year, the second-highest level of corporate failure for any industry behind transport and warehousing.

These include Dusseldorf-based Gerch Group, which this year filed for insolvency for its 鈧�1 billion Pr盲sidium project in Frankfurt and Inquartier in Ingolstadt; Geschaeftshaus am Gendarmenmarkt, the owner of the 45-storey Trianon office building in Frankfurt; Frankfurt-based Schoofs Immobilien, which specialises in developing stand-alone food markets; and Austrian real estate and retail group Signa Holding which had been building a 245-meter-high tower in Hamburg.

鈥淚t leaves you speechless if you look at the situation in more and more construction companies,鈥� says BVMB鈥檚 Gilka. 鈥淚t鈥檚 a declaration of bankruptcy for politics and a catastrophe for the construction industry and the housing market.鈥�