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The Reichstag, home of Germany's Parliament in Berlin
It wasn’t long ago that Germany’s reputation as Europe’s model democracy seemed beyond question. In Why the Germans Do It Better, published at the height of Brexit and early Trump-era dysfunction, John Kampfner portrayed a country held together by prudence, institutional competence, and an enviable public trust in statecraft. Then came Wolfgang Münchau’s Kaput, written with urgency in 2024, which stripped away the illusion: Germany, he argued, was no longer efficient—it was paralysed. And just when we thought we’d reached the bottom of the bureaucratic rabbit hole, journalists Chris Reiter and Will Wilkes brought out Broken Republik, documenting in painful detail the lived reality of dealing with German administration in everything from Berlin schools to Brandenburg construction offices.
All three books—each written with insight, and, yes, affection for the German project—now feel like dispatches from a world that has already changed. Friedrich Merz is now Chancellor. Trump is back in the White House, once again setting the world on edge with punitive tariff threats and bone-rattling musings about NATO commitments. And what remains of the post-Merkel consensus is being rewritten before our eyes. What hasn’t changed, at least not yet, is the dysfunction they all described. And that’s where it matters for us in real estate.
In sector after sector, the symptoms are the same. Prices are recovering in parts of the residential market, but developers remain paralysed by permitting delays and regulatory overhangs. Institutional appetite for debt strategies is resurging, yet the fundamentals for equity-backed development remain unresolved. The Pfandbrief market is enjoying a revival—but not because real estate risk has disappeared. In fact, as this issue of REFIRE makes clear, investors are being forced to look for safety not in the assets themselves, but in the capital structures that surround them.
What unites these developments is not any single policy or interest rate path—but a growing uncertainty about the governability of German real estate itself. Reiter and Wilkes’s diagnosis of broken coordination and administrative sclerosis was once seen as a Berlin problem. It is now, increasingly, a Bundesproblem. Merz’s new coalition has talked of unlocking supply and fast-tracking permitting. Yet beyond rhetoric, real change has proved elusive. Housing remains gridlocked, school infrastructure is underfunded, ESG retrofitting has stalled in legal ambiguity, and the courts are now weighing in on how rental indexation should function. These are not isolated obstacles—they are symptoms of a deeper institutional misfire.
Take the much-discussed case of Das große kleine Haus in Munich—the flagship pilot project for Gebäudetyp E, the so-called “easy building” typology designed to lower costs by cutting back on over-regulation. The project, led by a housing cooperative and architect Rainer Hofmann, managed to bypass several standard DIN norms, including strict sound insulation and heating requirements. The result: a nine-storey timber residential building with an estimated 10% reduction in construction costs. It’s the kind of pragmatic workaround many in the industry have called for. But turning this local exception into national policy would require an overhaul of building codes, state-level approval processes, and a political willingness to accept greater legal risk. That, in the current climate, looks increasingly far-fetched.
Meanwhile, the much-trumpeted ESG agenda is colliding with legal and financial limits. Property owners are being nudged—if not yet forced—into deep energy retrofits, but the numbers often don’t stack up. Cost pass-through mechanisms remain contested, subsidies are patchy, and court rulings have started to push back against rent indexation models that made retrofits viable. Some landlords are simply sitting tight, unwilling to commit capital without clearer rules of engagement. The policy ambition is there—but execution is adrift. And when “doing the right thing” carries uncapped financial and legal risk, many rational actors will simply do nothing.
For investors, the challenge is not simply navigating market volatility. It is determining whether the state that underpins those markets is still capable of delivering outcomes at scale. The strength of German real estate has always rested on more than yields or valuations—it relied on a functioning system. That system no longer commands the confidence it once did. And if the public sector cannot deliver on housing, infrastructure, or legal predictability, then private capital will respond the only way it can: by withdrawing, hedging, or redirecting its ambitions elsewhere.
And the market IS reacting. While prime assets and short-duration debt continue to attract bids, long-term equity—particularly for project development or secondary cities—has largely stepped back. Institutional capital is still watching Germany, but it is doing so through a narrower lens: defensive strategies, bulletproof covenants, short timelines. Fund structures are adapting, risk is being repriced, and in some cases, quietly exported. The concern isn’t just macro—it’s institutional. If investors start to view German governance as slow-moving or legally unreliable, then the capital exodus won’t be loud. It’ll just... happen.
None of this means Germany is uninvestable. On the contrary, the system retains deep reservoirs of institutional capital, skilled labour, and urban potential. But the assumption that the rules will hold, that planning will proceed, that regulation will stay legible—these can no longer be taken for granted. Kampfner celebrated the quiet confidence of German governance; Münchau exposed its hollowing out; Reiter and Wilkes chronicled its slow failure at street level. What follows now is no longer literary—it is political, and it will be measurable in permits issued, legal clarity restored, and public-private trust rebuilt.
Real estate investors have traditionally waited, cautiously, for conditions to normalise. That reflex must change. This is not a cycle—it is a structural moment. If the new government wants to be taken seriously on housing, infrastructure, and ESG delivery, then the real estate industry must stop treating itself as collateral damage and start acting as a political force. Not simply lobbying for subsidies or interest rate relief—but insisting on competence, consistency, and above all, governability—the kind that sets clear rules, processes decisions efficiently, and delivers outcomes at scale.