The delays in the construction of new German housing continue to mount, impacting over 220,000 apartments across the country. This setback is further exacerbating the housing shortage, particularly in high-demand urban areas, according to the latest residential study by fund manager and project developer WERTGRUND Immobilien AG in collaboration with market researchers bulwiengesa.
The study - "Residential Developments in Germany" - paints a stark picture of the current and anticipated state of the housing market in Germany. With construction starts delayed in 34% of all residential projects, the nation is struggling - and failing - to meet the growing housing demand, which the study estimates at around 420,000 apartment units per year until 2028.
"The completion delays are severely impacting regions where housing is most needed, particularly in our A-cities," said Thomas Meyer, CEO of the 30-year-old WERTGRUND Immobilien AG. He highlighted the acute deficit in these areas, noting that the supply challenges are not confined to major cities but are also prevalent in B, C, and D cities, as well as rural areas.
Population growth vs. housing supply
Between 2013 and 2023, Germany’s population expanded by 8%, reaching approximately 84 million. The growth is expected to continue, albeit at a slower pace, with an estimated 0.5% increase by 2040. However, this increase is unevenly distributed, with A-cities like Berlin, Hamburg, and Munich expecting a 5.6% rise due to demographic changes and continued high immigration rates.
Despite this demand, the construction industry has lagged, completing an average of 260,000 apartments annually over the past decade — well below the necessary volume to keep pace with population growth. Over 60% of these constructions were in rural areas, far from the urban centers where demand is most concentrated.
The scarcity of available housing has led to a sharp increase in rents, particularly in smaller cities and metropolitan outskirts. While purchase prices for new-build units peaked in 2022, a slight decline was observed in 2023 due to rising interest rates and inflation. Nevertheless, prices are expected to climb again, particularly in the A-cities.
Insolvencies and postponed projects
The property market is currently fraught with uncertainties, including delays and construction halts, exacerbating the housing shortfall. "We're witnessing a significant number of insolvencies and postponed projects, particularly in A-cities where the demand is greatest and the price drops most severe," Meyer explained.
The study identified 141,797 apartment units with delayed starts and 80,350 units under construction but delayed by an average of one year. These delays are attributed to a variety of factors, including bureaucratic hurdles, rising construction costs, and a lack of political support.
Given the dire situation, Meyer is joining the throng of housing developers in calling for urgent political intervention. "Reintroducing the KfW 55 subsidy for projects ready for construction and abolishing the land transfer tax on sales from developers to investors could significantly expedite the construction process," he suggested. Such measures would help address the mismatch between the high demand for housing and the sluggish construction rates.
Where to from here?
As Germany grapples with these challenges, the path forward requires a coordinated effort between the government, developers, and investors to alleviate the housing crisis. The detailed insights provided by the "Residential Developments in Germany" study underscore the critical need for strategic planning and immediate action to ensure the stability and growth of the housing market in the face of ongoing demographic and economic changes.
