Walter Eucken Institute
Prof. Dr. Dr. Lars Feld, Walter Eucken Institute
At the annual Quo Vadis real estate conference in Berlin, the so-called Wise Men delivered their traditional assessment of the German property sector, handing their findings to outgoing Construction Minister Klara Geywitz. The consensus: while there are signs of stabilisation, the industry remains in crisis, weighed down by weak economic growth, high construction costs, and political inertia.
Lars Feld, director of the Walter Eucken Institute and a lead economic expert in the report, set the tone with a stark warning: “The outlook is gloomy.” While the market appears to be bottoming out, he stressed that recovery remains slow, and broader economic conditions offer little support. “We are heading into the fourth year of stagnation,” he said, pointing to sluggish investment, cautious consumer spending, and persistent geopolitical risks limiting foreign trade.
The real estate sector, which once played a vital role in driving economic growth, is now struggling to regain momentum. Feld was sceptical that further interest rate cuts by the European Central Bank would provide much relief. “If the ECB cuts rates too much, its monetary policy will become expansive. In view of the inflation trend, it cannot afford to do so,” he cautioned.
The housing market remains at the centre of the crisis. The Wise Men’s report predicts that only 230,000 new homes will be built in 2025—down from 260,000 in 2024 and well below the estimated annual demand of 372,600. “Germany urgently needs more affordable housing,” the report states, but developers continue to face insurmountable barriers, including high energy costs, excessive regulation, and limited access to financing.
"Political reboot" required to revitalise the housing sector
ZIA President Iris Schöberl called for a “political reboot” to revitalise the sector. “If the right policies are set in motion this spring, the real estate industry, which contributes nearly 20% to GDP, could once again become an economic driver by 2025,” she said. The Wise Men urged deregulation, tax incentives, and harmonisation of state building codes to accelerate housing development.
The burden of regulation remains a central complaint. “A toxic mix of excessive costs and strict regulations is strangling investment,” said Feld. High construction costs, exacerbated by stringent energy efficiency requirements and bureaucratic approval processes, have made Germany one of the most expensive places to build in Europe. The Wise Men called for greater use of modular and serial construction to reduce costs and improve efficiency.
Rent regulation was also a major point of contention. The experts warned that the existing rent cap, introduced temporarily in 2015, risks discouraging investment in new housing if made permanent. “Capping rents limits supply,” the report argues, recommending that the policy be abandoned in favour of a more dynamic market-based approach.
Debts maturing in 2025 expected to crowd out investment
The financing landscape remains challenging. With banks tightening credit standards and refinancing pressures mounting, many developers find themselves unable to fund new projects. “The large volume of debt maturities in 2025 will crowd out investment,” the report states. “Credit conditions are simply too restrictive to support large-scale acquisitions.”
Refinancing will be particularly challenging for highly leveraged owners in the commercial sector. Distressed sales could rise as borrowers struggle to roll over debt, placing downward pressure on values in certain segments. Residential markets, while supported by chronic supply shortages, will also feel the effects of tight liquidity.
Despite these headwinds, investor sentiment remains mixed. Some market participants acknowledged that while the crisis persists, it is also creating openings for those with a long-term investment horizon. Others remain more cautious, believing that confidence in the market will take longer to rebuild than many might hope.
Looking ahead, the Wise Men argue that decisive action is needed. Their report calls for streamlining approval processes, cutting construction costs, and introducing new financial incentives to boost development. “Germany is facing a decisive year,” Feld concluded. “Without bold action, we will be here again next year, discussing the same unresolved problems.”