Unpredictability of construction costs - Will the project fail because of it?

Without knowing the exact facts or your actual financial leeway in detail right now, but with the information given, I consider it more reasonable to carry through with the project. All options seem modest, but what is the worst that can happen for you? You run out of money in between. The shell and part of the building services should still be feasible. In other words, a dry warm place with a functioning bathroom and an improvised kitchen. You don't really need much more to survive at first. And you can manage like that for a while. Inflation will initially work in your favor when paying off the loan. Everything else will show itself. A lot will happen before you actually know where you stand in the end.

Try to possibly mitigate the uncertainties with the materials by placing orders very early and store heating, tiles and bathroom ceramics, bricks, photovoltaics, kitchen somewhere in between (rented garage, relatives, ...). Extraordinary times require extraordinary measures. And moving into a turnkey house is currently not feasible under the given circumstances. Better to live in your own half-finished house than in an old shabby rental apartment. I hope you can still do some things yourself, because there will naturally be quite a bit to do later on. But even inexperienced people can (in the representative area – stay away from gas/water/electricity if you have no clue) nowadays do a lot more themselves, thanks to YouTube and great forums like this one here than ten or twenty years ago.

The problem is that if you stop now, you will lose your funding and the first 50k will be gone. You won't get that back quickly if you move away from KfW55. Especially since interest rates are running away from you, you won't be able to keep up at the moment.

It may be that the big bubble bursts, but that initially means nothing other than that the market will have to completely reorganize itself first. Raw material and energy prices will still be there. Labor costs will still rise. In other words, in my assessment building cheaper will not be possible anytime soon.

The good thing about your starting position: Wages will sooner or later follow inflation. And in a few years your installments will be relatively cheaper. Then sooner or later the garden will be doable too.

I was born in '82. In my childhood it was more or less common that neighbors in the new development area still had piles of earth, purchased cranes, and mini excavators in their front gardens for years.

In this sense I wish you all the best

Quick question, wasn't it stated in the contract that prices could change later? I mean, you had written something like that. Then he could be contractually in the right.

Do you already have a child? If not, postpone the attic conversion including the bathroom to the back and use the granny flat as a bedroom in the meantime.

How is it then even possible that we are so bound by this offer and have a contract, but the construction company cheerfully increases the prices even though we signed before 03.03?

I think that as far as we could live in it, we would definitely come.

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Our salaries are definitely increasing, [...] gets their annual raise and I [...] am going back to full-time. The loan installment was chosen so that we can already pay it well now.