Germany misallocating new housing resources – IW Study

Too little residential accomodation is being built in Germany's big cities, while too much is being built in rural areas, according to a new study published by the Institut der deutschen Wirtschaft (IW) in Cologne. The authors of the study are calling for a change in government policy to address the problem.

The prestigious, and generally employer-friendly IW based its study on its own projections of Germany's housing needs for the period 2015-2020, i.e. the next five years. In the view of co-author Prof. Michael Voigtländer, whom we have often quoted or interviewed in these pages, actual construction is considerably lagging what is needed, and what construction is occurring is often in the wrong places.

Last year 245,000 new residential dwellings were built throughout Germany, of which only 66,000 were built in cities with more than 100,000 inhabitants. The IW estimates that in these bigger cities, at least 102,000 needed to be built to keep pace with demand. The IW says that too many housing units were built in places like the Eifel, the Black Forest, or parts of eastern Germany, where they are not needed and where vacancy rates are already high.

Prof. Voigtländer and his researchers believe that at least 266,000 units need to be built annually between 2015 and 2020. Their study says that demand and supply are coming together in cities such as Düsseldorf, Bremen, Essen and Dortmund (these last two are actually falling in population), but in other large cities such as Berlin, Munich, Hamburg, Cologne or Frankfurt large gaps exist. Berlin alone needs 20,000 new apartments by 2020, although less than 9,000 were completed in 2014.

Lack of building land is at the heart of the problem, says Voigtländer. "Rural municipalities are trying to lure companies and new residents by offering fresh inexpensive building land. Given the low interest rates, the result is too much building, as prospective owners opt for a new house rather than buying an existing property," he says.

Meanwhile, ever more students, mobile pensioners and of course immigrants are drawn to the larger cities, where building land is scarce, with the result that prices get pushed up. 

Voigtländer is calling for a loosening of building regulations in the bigger cities such as minimun ceiling height and allocation of parking spaces, which many urban residents no longer need. Inactive industrial land must be rezoned for residential housing, while in rural areas fresh incentives should be offered to restore and develop existing but old properties in villages rather than pushing people to the outskirts with the offer of cheap land.

Given the long-term nature of the demand discrepancies between cities on the up and others in decline or surrounding rural areas, the IW researchers are also calling for a more joined-up approach to integrating the two sides – for example, linking growing urban areas with shrinking rural population centres through further infrastructural investment such as improved rail lines, more buses, and better cooperation between municipalities and long-distance bus operators. 

Regions like North Rhine-Westphalia have many growing cities in close proximity to those in decline – Voigtländer cites Düsseldorf and Wuppertal as an example – where politicians need to address the issue of improving local infrastructure to promote commuting from one town to work in another further away.

Figures from the German Federal Office of Statistics show that the authorities are making efforts to address the problem. New building permits were granted in the first half of 2015 for 140,000 new housing units, a total of 3,600 or 2.6% more than in the same period last year. Last year's growth figure however was 9.6% more than in 2013, indicating a slower rate of growth.

The total figure for 2014 was an increase in permits of 5.4% to 289,000 units, while actual units built last year was 245,000. Housing and Construction Minister in the government in Berlin, Barbara Hendricks, also stated recently that annual output would have to increase to 270,000 units annually by 2020.