Real estate giant Vonovia pulls the ripcord due to rising construction costs and interest rates and stops all new construction projects planned for 2023.

"We will not be starting any new construction projects this year. Inflation and interest rates have risen enormously and we can't close our eyes to that," Vonovia CEO Daniel Riedl told the "Westdeutsche Allgemeine Zeitung" (Tuesday edition). Plans in Berlin and Dresden are particularly affected. The smaller competitor LEG is also keeping its money together in view of the cost explosion - it has stopped acquisitions and wants to wind up its new-build business. NRW Construction Minister Ina Scharrenbach called for a nationwide moratorium on construction costs. New planned regulations should be subjected to a "reality check".

"For properties that we used to be able to offer for a basic rent of twelve euros per square meter, we would now have to move towards 20 euros to recoup our costs of 5,000 euros per square meter," said Riedl. These rents are "completely unrealistic" in large parts of Germany. Rents of eight or nine euros would also be necessary to cover the nationwide demand of 700,000 apartments. The federal government must intervene and provide clear funding guidelines and drive forward the digitalization of building applications.

In November, Vonovia CEO Rolf Buch had already reduced investments in new construction to around 350 million euros below the previous year's level, citing the increased costs.

Tim-Oliver Müller, Managing Director of the Federation of the German Construction Industry, had recently warned that the urgently needed new residential construction would be slowed down by the cost explosion. "Many projects have been put on hold or even canceled," he said.

Vonovia's announcement was just the tip of the iceberg, emphasized Scharrenbach. What is needed now is "a nationwide offensive to speed up planning - including for housing construction". The federal states and local authorities need more freedom.

(Report by Anneli Palmen and Matthias Inverardi, edited by Myria Mildenberger. If you have any queries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)