The mood in Germany's residential construction sector has improved to its highest level in over three years, according to the latest Ifo Institute survey. The business climate index for housing construction rose sharply in September to -21.8 points, up from -26.4 points in August, marking the highest reading since August 2022. Companies reported more positive assessments of both their current situation and expectations for the coming months.

"The housing construction sector is breathing a little easier," said Klaus Wohlrabe, head of Ifo surveys. "We can't speak of a real trend reversal yet - but the low point seems to have been passed." The improvement comes after the index had remained significantly in positive territory from 2016 to 2021, with the exception of a brief COVID-19 outlier, before declining with the start of the Ukraine conflict.

Despite the upward trend, the order situation remains tense. The proportion of companies complaining about order shortages actually increased slightly from 45.7% to 46.7%. Cancellation rates also remain high, though they declined marginally from 8.5% to 8.4%. "The increased building permits have not yet been reflected in the order books," Wohlrabe noted.

The improvement comes amid broader policy changes in the construction sector. The German parliament recently approved the so-called "construction turbo," which aims to significantly accelerate approval procedures for new buildings, densification projects, and building extensions - reducing processing times from approximately five years to three months. This regulation is set to remain in effect until the end of 2030.