Lack of urban building land pushes up housing prices

New construction can’t keep up with increasing demand in many growing cities, according to a BBSR housing market analysis. Why? Building land is either not available or it’s too expensive, among other factors. 

Apartment building construction has been booming in major and medium-sized German cities for more than a decade. Yet bottlenecks continue to be an issue and the housing markets remain tense. Cities are struggling to accommodate the new residents resulting from immigration and in-migration because there is hardly any building land available or it is simply too expensive. These are some of the findings of the Housing and Real Estate Market Report 2020 produced by Germany’s Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR). 

Building land prices in major cities nearly doubled in a decade

A scarcity of residential land in urban areas saw the cost of building land increase nationwide by a massive 84% between 2010 and 2019. During the same period, prices for new and existing housing went up by roughly 50%. The populations living in large German cities grew by 7.5% and many cities experienced steady growth in housing demand.

Meanwhile in rural areas, vacancies remain a challenge even though those areas have also experienced some in-migration. According to BBSR, around 4.2% of Germany’s total housing stock was vacant in 2018.

Rental apartments dominated new residential construction

Between 2009 and 2019 the number of completed rental apartments nationwide rose by more than 84% to 293,000, while the number of construction permits for apartments doubled. These developments are paired with a significant construction backlog: at the end of 2019 there were more than 740,000 apartments that had been approved but not yet completed.

The BBSR attributes the dynamics in the construction completion figures almost exclusively to multi-storey residential construction. Almost three times as many apartments in new multi-story apartment buildings were completed in 2019 compared to 2009. Such buildings now make up 59% of the total new residential construction activity in Germany.

This type of construction dominates in the large and medium-sized cities – insofar as there is sufficient building land available – while the construction of detached houses dominates the outer-urban and rural regions. Despite the difficulties caused by a lack of affordable building land, construction in large cities increased from 20% to 30% between 2005 and 2019. The BBSR expects the positive trend in building completions will continue in the coming years.

Rental price growth slowed throughout Germany in 2020

Last year the asking rents for new and renewed leases only increased by 3.1% to €9.16 net per square metre. This slowdown most noticeably affected major cities with more than 500,000 residents, where growth was just 2.9%. The highest rent increases were recorded in outer urban districts with 3.8% growth.

In summary, the BBSR suggests that high demand for housing in the growth regions will continue to determine the rents and prices for building land, houses and apartments in 2021.