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Building permits for apartments in Germany are finally rising, yet the outlook for actual construction has darkened sharply. The German Economic Institute (IW) forecasts completions will fall to around 235,000 units in 2025 and drop further to roughly 215,000 in 2026, down from 252,000 last year. The paradox reflects the brutal arithmetic of construction lag: what looks like recovery in the permit data is the echo of a crisis already baked into the system.
The time lag explains the contradiction. From permit approval to completion now takes an average of 26 months, and in multi-family housing, where demand is greatest, up to 34 months. IW’s Ralph Henger considers the decline inevitable. “Only what was approved at that time can be completed today and in the near future,” he told Wirtschaftswoche. The 2022–2023 collapse in permits, triggered by rising interest rates and construction costs, is now feeding through as falling completions regardless of any improvement in current approvals.
That lag has lengthened as many permits were delayed or abandoned during the rate shock. The result is a shrinking pipeline even as new approvals edge higher. Germany completed fewer homes in 2024 than at any time since 2015, and the IW forecast suggests 2026 could be worse still. The coalition’s target of 400,000 new homes a year was never reached and now looks increasingly detached from economic reality.
Permits up, confidence still missing
The Federal Statistical Office reported 19,300 apartments approved in August 2025, up 5.7% year on year. Over the first eight months, 151,200 units were permitted, an increase of 6.5%. July’s figure, up 30% year on year, prompted Construction Minister Verena Hubertz to claim that “housing construction is picking up” and the industry is “regaining optimism.”
Developers were unconvinced. “Housing construction is at a standstill, especially where the need is greatest,” said Aygül Özkan, CEO of the German Property Federation (ZIA). GdW president Axel Gedaschko was equally blunt: “We are still a long way from a real turning point.”
The composition of growth explains their scepticism. Single-family homes rose more than 15% to 29,300 units in January–August, while multi-family dwellings—critical for affordability in cities—grew by less than 5% to 79,100 units, still 36% below 2021 levels. Economist Sebastian Dullien expects construction to remain too weak to ease shortages. “In 2025 fewer than 250,000 new homes are likely to be approved, whereas 320,000 would be needed.” Gedaschko added: “Even with a little tailwind, it is unlikely more than 218,000 homes will be built in 2025. That is far too few for the many people looking for housing and the companies seeking workers.”
Government response: subsidies and experiments
The federal government is countering with its “Bau-Turbo” programme to accelerate approvals, along with improved subsidy conditions. From 23 October, two KfW-backed schemes for low- and middle-income families offer lower interest rates. “Home Ownership for Families” supports construction or first-time purchase of climate-friendly homes, while “Young People Buy Old” subsidises purchases of older, energy-inefficient properties requiring renovation within four and a half years. The renovation standard has been relaxed to Efficiency House 85, removing one deterrent for first-time buyers. The 2025 federal budget provides €7.4 billion for housing and construction, including higher social housing allocations.
Hubertz has also proposed more creative measures, urging supermarket chains to build apartments above stores and calling for the conversion of unused commercial buildings. A 2019 Pestel Institute study found that up to 1.2 million homes could be created through infill and repurposing, though many single-storey structures would require complete rebuilding. Industry groups say reforms remain too slow. Gedaschko described the government’s proposed EH-55 subsidy as “a step in the right direction” but warned it must be “well funded and sustained.”
Developers diverge: Instone buys, landlords retreat
Amid industry caution, developer Instone Real Estate is taking the opposite tack. CEO Kruno Crepulja says “now is the best time for us to invest heavily.” The company has already purchased land across nine metropolitan regions with a gross development value above €1.1 billion, enough for roughly 2,100 new units—about 800 of them 'affordable'. Half of the projects are slated for joint ventures with institutional investors, allowing Instone to share risk and capital while maintaining liquidity for future phases. The company plans further land purchases with a total GDV of around €2 billion by 2026.
That confidence contrasts sharply with the stance of Germany’s major landlords. LEG Immobilien, the country’s second largest, has frozen all new development. “We would need a higher return than in our existing business. We cannot achieve that under current conditions,” said CEO Lars von Lackum. Vonovia, by contrast, continues selectively, building 3,000 new apartments. The split illustrates a bifurcated market: developers can still profit by timing land and forward sales, while portfolio landlords find new construction uneconomic relative to existing yields.
REFIRE: The rise in permits gives the illusion of recovery, but the fundamentals remain bleak. With 26 to 34-month lags from permit to completion, weak 2023–24 approvals guarantee fewer finished homes through 2026. Most new permits concern single-family homes rather than urban multi-family projects. Subsidies and streamlined rules may help eventually, but timing matters. Major landlords are retreating, while opportunistic developers such as Instone see value in land acquisition. Real improvement will come only when multi-family permits rise sustainably and new projects in cities become financially viable. Until then, Germany’s housing shortage will deepen despite talk of “construction turbos” and rooftop housing schemes.