Germany housing numbers just don't add up. More price rises ahead.

2015´s unseasonally warm weather has provided us in Germany with the absurd sight of winter revellers hugging their Glühweins at the traditional Christmas market clad in nothing more than short-sleeved summer shirts.

While this doubtless makes the purveyors of more traditional Teutonic fare wince at the absence of the more usual snow-bound backdrop, one part of the community can thank Allah that the winter has so far been so unusually clement. For the nearly one million refugees and asylum-seekers that arrived in Germany last year, life in the makeshift gymnasiums, fire stations, warehouses and disused factories that have been corralled back into life to provide temporary housing could have been a lot colder.

As local municipalities struggle to get to grips with the scale of the challenge facing them, ramping up the heating for those already in some form of shelter - and those thousands still arriving every day - is thankfully not their most pressing of priorities.

But it's becoming clear that, very shortly, housing – or more specifically, the scarcity of it – is set to become a major political issue in Germany, for which the authorities have at the moment very few answers.

REFIRE recently attended the presentation of a new study by the employer-friendly Institut der deutschen Wirtschaft of Cologne (IW), commissioned by the housing firm d.i.i. Deutsche Invest Immobilien. The study analyses likely demand for living space across Germany in the light of new immigration inflows, in addition to the previous acknowledged shortage of affordable housing. The conclusions highlight the potentially explosive gap between minimum demand and maximum available supply. There's real trouble ahead.

Professor Michael Voigtländer of the IW presented a number of scenarios based on realistic assessments of demand, both from the inflow of new refugees but also from the rising number of mobile workers from other EU states, whose number has been rising steadily since the onset of the financial crisis.

Germany's population is now headed to 85m by 2020, no matter what. Demographic doom-mongers who have long predicted falling population figures have had their day. Whichever way the economists dice it, the new demand is for 430,000 new-build apartments annually through 2020. Germany's Environment Minister Barbara Hendricks, of Angela Merkel's coalition partners the SPD, has set a target of 350,000 a year. In practice, last year 2015 saw 245,000 units being built, up from 159,000 units as recently as 2009. To meet demand, construction would have to rise by 75%. We repeat, rise by 75%.

In other words, the gap was already widening before the trickle of refugees turned into last year's flood. The building of an additional 240,000 units a year will be simply impossible, alone due to the lack of zoned residential land.

The macro picture, however useful, tells us little enough about how to pinpoint meaningful solutions to what is likely to manifest itself later in social unrest. It tells us very little about the where, and the how. The politicians have no answer to these, and were in any event stoking the flames of rent and price rises in Germany's cities – a situation now programmed to get worse.

Much of Germany's recent new building has been in rural areas and regional towns where, simultaneously, the vacancy rates are higher than average. Such has been the demand for accomodation in the bigger cities that there is effectively no vacancy rates left – but there are vacancies in rural areas, where it is assumed refugees can be housed, if they are willing. Leaving qualitative issues aside, such as whether this is likely to promote integration, this is a very big IF.

One man who knows something about housing large numbers of people is Rolf Buch, the CEO of housing giant Vonovia. In an interview this week with the Rheinische Post, Buch said "Even before the refugee crisis we had bottlenecks, mainly in the major cities. Now these problems are exploding. The country is not prepared to solve it in the short term, neither with regard to construction nor to regulation."

Buch and others are clamouring for government action to improve regulation, from the time it takes to process planning permission to the notoriously high building standards which hinder fast production. New measures in the pipeline by Justice Minister Maas to restrict rent increases and prevent modernisation costs being borne in part by tenants, are sending out all the wrong signals to a marketplace that is screaming out for new reasons to build. And finding too few.

Vonovia and others are hurriedly trying to come up with new housing solutions, such as new residential units that cost €1,500 per square metre, rather than €2,500. As the IW and other think tanks recommend, Germany will have to look at accepting new standards, such as housing that's built to last for ten to fifteen years, rather than fifty, and that rent out for cheaper than current rates. It's a massive challenge for Germany, but the prevailing political climate does not encourage us to believe that the spirit of innovation, so crucially needed now, will be offered a warm welcome. But we hope we're wrong.