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REFIRE has been documenting the collapse in the number of building permits issued in Germany over the past two years - a clear harbinger of the future looming deficit in available housing. But Germany’s residential property market is also facing a significant slump in sales of building land, with similar potential long-term consequences for the housing market. A recent study by the Gewos Institute reveals a steep decline in the number of transactions for building land, which will worry anybody involved in construction activity.
According to the latest IMA property market analysis by the Hamburg-based Gewos Institute for Urban, Regional, and Housing Research, trading in building land fell by around 34% nationwide in 2023 compared to the previous year. This marks the lowest level of transactions since the institute began its nationwide time series in 1995.
A historic low
In 2023, only about 46,700 purchases of ready-to-build residential land were registered, a drop of 34.2% from 2022. Land turnover fell by 39.5% to approximately 4,400 hectares, while cash turnover plummeted by 45.2% to €8.9 billion. Sebastian Wunsch, Head of Property Economic Analyses at Gewos, remarked, "Both the number of transactions and the take-up of space in 2023 marked lows since the start of the German-wide time series of the survey in 1995."
This downturn is particularly alarming when compared to the peak in 2021, during the property boom. Sales of residential building land have more than halved, with a 54% drop in transactions, a 57.8% fall in take-up, and a 60.2% decrease in cash sales. Wunsch cautioned, "The areas not sold today are the unissued permits of tomorrow and the unbuilt flats of the day after tomorrow."
The decline in building land sales is seen as an early indicator for new construction activity. Wunsch explained, "While the decline in building permits is likely to be reflected in falling completion figures this year and in the coming years, the low sales figures for residential building land ready for construction and future building land indicate that new construction activity in Germany will remain low in the longer term."
This trend is corroborated by the Federal Statistical Office, which reported that 294,400 flats were completed in 2023, slightly fewer than in the previous year. Although this figure exceeded initial expectations, the weak construction sector and declining building permits are expected to have a delayed impact on future production figures.
Impact on Major Cities and Surrounding Areas
The slump in building land transactions is particularly pronounced in Germany's major cities and their surrounding areas. In the seven most populous cities—Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart, and Düsseldorf—the number of transactions fell by 26.7% in 2023, with a 27.6% decrease in land take-up and a 54% drop in cash turnover. Compared to 2021, these figures represent declines of 50.9%, 52.8%, and 67.1%, respectively.
In the surrounding districts of these major cities, the market also experienced significant declines. Transactions fell by 35.6%, take-up of space by 46.6%, and cash turnover by 45.6% compared to the previous year. Wunsch emphasized the broader implications, stating, "We will not be able to close the demand gap with redensification and additional storeys alone."
The decline in sales is not limited to ready-to-build land but extends to future building land as well. In 2023, around 6,000 purchases of nascent building land were registered nationwide, a 23.7% decrease from 2022 and a 37.5% drop from 2021. Land turnover for nascent building land fell by 30.4%, and cash turnover decreased by 41.7% compared to the previous year.
Unlike ready-to-build land, nascent building land cannot be built on immediately. This category includes raw building land, which is designated for building but not yet developed, and expected building land, which is anticipated to be used for building purposes based on urban planning but lacks guaranteed future buildability.
REFIRE: The Gewos study shines a spotlight on what is a critical juncture for Germany’s residential construction sector. As Wunsch aptly put it, "The space not sold today is the unissued permits of tomorrow and the unbuilt apartments of the day after tomorrow." The significant declines in building land transactions signal huge potential challenges ahead in addressing the country’s housing shortage, particularly in urban areas.
