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Last year just 193,000 new homes received building permits, a 19% drop compared to the previous year and galaxies away from the government’s now abandoned (and ridiculed) target of 400,000 annual units. This decline, driven by rising interest rates and escalating construction costs, threatens to exacerbate an already dire housing shortage and push rents to record highs.
The sharp fall in permits spans all housing types. Approvals for single-family homes dropped 22%, while two-family homes and multi-family dwellings saw declines of 13% and 22%, respectively. “The gap between supply and demand is widening dramatically,” warned ZIA President Iris Schöberl, who estimates that 600,000 new homes are needed annually to stabilize the market. Without urgent action, the shortfall could exceed 830,000 units by 2027.
Rents have soared as a result of the supply-demand imbalance. In 2024, rents for existing apartments increased by 4% nationwide, with smaller towns bearing the brunt of the crisis. Neubrandenburg, for example, recorded a 10.5% rise, while rents in Rheine and Hattingen climbed over 10%. Even in major cities like Berlin and Hamburg, where rental markets are traditionally more robust, rents rose 9.8% and 8.3%, respectively. Michaela Engelmeier of the German Social Association described the situation as “an unbearable poverty trap,” calling for immediate measures to cap rent increases and expand social housing.
Strong regional disparities in rent increases
A recent analysis by research group GeoMap paints a stark picture of regional disparities. While some towns, such as Unna and Ibbenbüren, saw rent increases of less than 2%, others in North Rhine-Westphalia experienced double-digit growth. In smaller towns, limited housing stock coupled with rising demand has fueled sharper rent increases, as residents seek affordable alternatives to larger cities. In contrast, in terms of listings, Berlin’s 49% rise in rental listings has provided some relief, though not enough to mitigate overall cost pressures on tenants.
Industry leaders are demanding a comprehensive policy overhaul. Axel Gedaschko, President of the German Housing Association, called on the government—or its successors in a few weeks' time—to prioritize residential construction above all else. “The situation is dramatic, and the construction of housing must take precedence over other concerns,” he said. Tim-Oliver Müller of the German Construction Industry Federation emphasized the need for a stable funding framework. “What is approved tomorrow will be built the day after tomorrow,” he stressed, urging policymakers to simplify construction requirements and address affordability alongside climate protection.
Amid all these difficulties, some see signs of a silver lining. Falling land prices and a growing demand for affordable housing create potential for innovative solutions, including building type E (Gebäudetyp E) and employee housing models. However, these require decisive government action to materialize. Gedaschko stressed the urgency: “Without strong political will, we risk deepening the housing crisis further.”
The trajectory of Germany’s housing market in 2025 will depend on how effectively policymakers and industry leaders address these entrenched challenges. With demand showing no signs of abating, ensuring a steady pipeline of new housing will be critical. Innovations, combined with pragmatic policy measures, could set the stage for a more balanced and sustainable market.