Berlin, Jul 19 (IANS): Germany's housing crisis is set to intensify, with the number of building permits for dwellings falling by 25.9 per cent year-on-year in May, the Federal Statistical Office (Destatis) said.

After a year of continuous decline, only 23,500 new homes were approved for construction in Europe's largest economy in May, Xinhua news agency quoted Destatis as saying.

"Rising construction costs and increasingly poor financing conditions are still likely to have been the main factors contributing to the decline," it said.

Prices for new residential construction in Germany rose by 8.8 per cent year-on-year in May, according to Destatis.

Compared with the previous reporting month of February, the increase slowed from 15.1 per cent.

Given the rise in the cost of residential construction, and the reduction in government subsidies for new construction, "the situation is not expected to improve for the rest of the year", a spokesperson for the German Construction Industry Association told Xinhua on Tuesday.

"Permits will continue to decline."

This year, Germany already has a shortage of 400,000 apartments, which is expected to grow to as many as 700,000 by the middle of the decade, according to the German Property Federation (ZIA).

Experts believe that the German government's target of building 400,000 new apartments per year will continue to be missed.

According to an estimate by the ifo Institute for Economic Research, the number of annual completions will fall to 175,000 by 2025.

The 300,000 apartments "that we are creating noware definitely too few", admitted Klara Geywitz, Minister for Housing, Urban Development and Building, at the end of April.

As a result of the housing shortage, rents in Germany are rising steadily. In the second quarter of the year, rents for existing apartments and for new buildings increased by 2.5 per cent and 2.2 per cent respectively quarter-on-quarter, according to an analysis published by online marketplace ImmoScout24.