Construction permit numbers continue to plummet
The numbers just keep dropping. In September, construction of 19,300 apartments was given the green light, marking a 29.7% decrease compared to the same time last year. Over the first nine months of the year, the number of permits has fallen a whopping 28.3% from the previous year, down to 195,100 apartments.
This drop in permits encompasses not only new apartments in brand-new buildings but also new dwellings in existing structures. As per the data, every building type saw a significant decrease, save for residential homes. The largest decline was observed in the construction of two-family houses, where permits dropped more than 50%. The stats for Lower Saxony are still forthcoming for September.
The Federal Statistical Office attributes this downward trend to sky-high construction costs and unfavorable financing conditions.
It's been a harsh reality for two-family houses, witnessing a staggering decrease in building permits. This ongoing dip can be connected, to some extent, to the soaring construction costs and more stringent financing conditions.
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Factors impacting construction permit numbers vary depending on the region:
- Regional Differences: Given the fluid nature of construction market trends, the effect on building permits has shown varying results. In the United States, for example, the West region saw a 7.8% decrease in December 2024, while the Northeast, Midwest, and South saw increases of 5%, 0.5%, and 0.9%, respectively.
- Economic Factors: In the context of the U.S., the Federal Reserve's decision to maintain low-interest rates has kept mortgage rates low, making it more manageable for borrowers to obtain loans. However, the uncertainty stemming from these decisions can lead to builders delaying projects. The labor shortage in the U.S.'s residential construction market can also contribute to the descent in building permits, as the average age of the workforce and insufficient training programs impact the industry.
- Construction Costs and Financing Conditions: The cost of construction materials and labor is a significant factor in the affordability of new projects, and in the U.S., commercial construction costs can range from $80 to $375 per square foot. Hidden costs such as permits, site preparation, utilities, and interior finishing can rapidly escalate, necessitating meticulous budgeting. The availability and affordability of financing are also of utmost importance, impacting the overall trend.
- Market Demand and Affordability: The rising demand for affordable housing in the U.S. has led to an increase in housing starts and building permits for single-family homes. However, the industry still struggles to keep up with demand, posing challenges regarding affordability.
- Regulatory Factors: Issues such as permit requirements, zoning approvals, and environmental impact assessments can add substantial costs to construction projects. Neglecting these costs can result in delays, penalties, or even project termination, underscoring the importance of early permit planning.
