(Bloomberg) -- Germany’s efforts to increase housing supply are faltering as higher materials costs triggered a decline in residential construction orders by more than one third in the first quarter, according to the country’s main builders lobby.

Applications for housing permits dropped by almost 24,000 in the January to March period, the Berlin-based ZDB said Thursday. The bleak outlook may soon prompt companies to start shedding workers, according to Felix Pakleppa the trade group’s managing director.

“We have been feeding off the backlog for half a year and now we’re lacking follow-up orders,” Pakleppa said in an emailed statement commenting on new data from the Federal Statistics Office.

Builders across Europe are suffering from a combination of rising interest rates and a jump in the cost of materials. That’s led to a sharp change in Germany, where construction companies had been vigorously hiring to try to meet the ruling coalition’s target of building 400,000 homes a year. 

Builders are now facing the prospect of having to put workers on state-subsidized furlough or “in the worst case” cutting jobs, Pakleppa said.

He urged the government to step in and urgently provide “investment stimulus,” attacking Chancellor Olaf Scholz’s administration for revoking some construction subsidies last year. 

“People willing to build are losing heart and canceling orders,” he said. 

Germany’s KfW state-owned development bank could help with cheaper loans and the government should soften “exaggerated energy requirements” for buildings at least temporarily to prevent the housing market crisis worsening, he added.

Some of Germany’s European Union partners also have troubled housing markets. In the neighboring Netherlands, new construction remains well below government targets amid an acute shortage of affordable homes.

Sweden’s residential property market saw construction levels falling by more than half in the first quarter as one of the world’s worst real estate routs continues to gather steam.

--With assistance from Cagan Koc.

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