Sandsun/Envato
Germany’s housing crisis has been deepening for years, driven by soaring construction costs and regulatory complexity. The latest figures from the Federal Statistical Office (Destatis) paint a further bleak picture: only 215,900 new homes were approved in 2024, the lowest level since 2010 and a 16.8% decline from the previous year.
This marks the third consecutive year of falling building permits, with approvals for single-family homes down 20.3% to 37,900 units and multi-family homes declining by 19.7% to 114,200. The sharp drop in permits signals continued difficulties ahead, as approvals are a key indicator of future construction activity.
While the downturn persisted, there were signs of stabilisation in the latter half of 2024. The rate of decline slowed from 21.1% in the first half to 12.5% in the second, suggesting that the worst of the slump may be over. Destatis also noted a slight recovery in mortgage lending and slowing construction cost inflation, which could support a rebound. Government data shows that mortgage transactions in early 2025 were up 24.9% year-on-year, reinforcing hopes in some quarters that the worst of the financing squeeze has passed.
‘Interest rates alone won't revive construction’
But Dr. Ralph Henger of the Cologne Institute for Economic Research (IW) warned that the persistent gap between housing demand and new supply is worsening affordability concerns. "We have a huge gap between what needs to be built and what is currently being built and will come onto the market in the next few years," he said. He also dismissed the idea that interest rate cuts alone would revive construction. "The brakes on more construction activity are not just financing costs, but also high material costs, excessive building standards, and layers of bureaucracy," he added.
The construction industry has blamed the downturn on policy failures. Felix Pakleppa, managing director of the Central Association of the German Construction Industry (ZDB), criticised the suspension of key new-build subsidies early in the legislative period, calling it a major mistake. "At a time when financing costs were tripling, the government pulled back support instead of reinforcing it," he said.
The outlook remains uncertain. Some analysts predict that housing completions in 2025 will be as low as 230,000 units, well below the government's (now laughable) original target of 400,000 per year. The ZDB has called for immediate regulatory relief, including streamlined approval processes, a reduction in energy efficiency requirements, and a reintroduction of incentives for new construction.
Building minister Geywitz expects trend reversal this year
The - still, just about - Federal Construction Minister Klara Geywitz has insisted that the worst may be over, pointing to a slowdown in the rate of decline and the modest recovery in mortgage lending. "Residential construction is going through a difficult time right now," she said, arguing that declining mortgage rates, easing construction cost inflation, and a stabilising order book indicate better prospects for 2025. "We expect the trend to reverse this year," she said.
But such remarks have drawn scepticism from industry figures who see them as little more than political reassurance. Cyrus de la Rubia, chief economist at HCOB Bank, echoed these concerns, highlighting the political inaction surrounding the housing crisis. "These latest building approval figures stand in stark contrast to the housing shortage that continues to be complained about in the big cities," he said. He too criticised the over-reliance on monetary policy to address the issue. "Simply relying on interest rate cuts by the European Central Bank to revive the market is a short-sighted approach. The fundamental barriers to construction remain firmly in place."
REFIRE: The disconnect between policy rhetoric and market realities remains stark. Developers continue to face prohibitive costs, approvals remain sluggish, and demand far exceeds supply. Unless meaningful reforms are implemented soon, the gap between housing demand and political will may soon become unbridgeable.