By Ludwig Burger, Christian Kraemer and Miranda Murray

BERLIN (Reuters) -The German government approved on Wednesday a draft law that aims to speed up the construction of housing units, which has tapered amid a wider property market crisis, by cutting red tape that often ensnares projects for years.

The number of apartments built in Germany dropped sharply last year, falling 14.4% from 2023 to 251,900 - far below the previous government's goal of 400,000 apartments a year - as Germany's property sector recovers tentatively from its most severe slump in decades, which began in 2022.

Residential building permits, an important indicator of construction activity over quarters to come, were up 4.9% in April, the second month of gains in construction planning, according to federal statistics office data on Wednesday.

Germany's new government has not set a concrete goal but Chancellor Friedrich Merz named affordable housing as a key social issue, telling the parliament that "building, building, building" is how he plans to make housing more affordable.

Under the bill, municipalities in Germany can streamline the approval process for residential buildings by allowing more leeway on development plans, which often take several years to be put together.

Construction will now be automatically approved if the municipality does not vote against it within two months, according to the bill.

The aim is to build more quickly, increase urban consolidation and more easily add storeys to apartments or homes, said Construction Minister Verena Hubertz.

"We obviously don't throw all the rules out the window," she said. "But we do want to tackle them pragmatically and more quickly."

Speaking alongside Hubertz at a news conference, Finance Minister Lars Klingbeil said the government also plans large-scale investments in new affordable housing, adding that key figures in draft budgets set to be presented next week would reflect that drive.

"With the 500 billion euro special fund, we have also created the necessary conditions for more investment," said Klingbeil.

(Reporting by Ludwig Burger, Christian Kraemer, Miranda Murray and Rene Wagner, Editing by Ed Osmond and Gareth Jones)