Housing shortage in Germany: Government announces new construction offensive!

Housing shortage in Germany: Government announces new construction offensive!

The federal government is planning to counteract the pressing housing shortage in Germany with an offensive in housing construction. This is happening against the background that the trend towards more housing construction was already evident before the current government was formed. However, there are worrying warning signs in the real estate market that call into question any positive development. Experts emphasize that too little new and affordable living space is being created, and the mood in the housing and real estate industry is tense ahead of the upcoming “housing construction summit” in the Chancellery.

The numbers speak for themselves: In July 2023, only 21,000 apartments were approved, which represents a decrease of 31.5% compared to the previous year. Overall, the number of approvals fell to 156,200 in the first seven months, which corresponds to a decrease of 27.8%. Building permits for single-family homes in particular fell by 36.5% to 30,800. Rising financing and construction costs represent a significant hurdle for new construction and are slowing down activity in the industry.

Economic challenges

The largest German stock exchange companies are also under pressure from a persistent economic crisis and tough competition. Tariffs imposed by US President Trump could impose additional burdens and further aggravate the economic situation. There are also uncertainties about the future of the Volkswagen plant in Osnabrück, which Lower Saxony's head of government emphasizes as the car company's responsibility for the location.

The challenges in the real estate sector are also massive: The real estate group Vonovia has already stopped tens of thousands of construction projects, and insolvencies are increasingly occurring among construction companies, including the Centrum Group, Gerch and the Project real estate group. These developments are contributing to a serious housing shortage in Germany, which, according to the Eduard Pestel Institute, is greater than it has been in 20 years, with a current shortage of over 700,000 apartments.

Rise in rents and falling property prices

Despite the sharp decline in new construction and the problems on the real estate market, asking rents in large cities are rising. In the first half of 2025, these rose by 6.7%, with an increase of 16.7% being recorded in Berlin. Munich remains the most expensive rental market in the country at 22.25 euros per square meter. In contrast, house prices have fallen for the second year in a row, with an average fall of 9.9% compared to last year - the sharpest decline since 2000, particularly pronounced in major cities such as Berlin, Hamburg and Munich.

However, UBS analysts predict that if financing conditions improve, property prices can be expected to rise again in the medium term. In Frankfurt and Munich, many properties are considered highly overvalued, as evidenced by index values ​​of 1.27 and 1.35, respectively.

In order to stimulate housing construction, proposals such as less stringent requirements, low-interest building loans and better depreciation options are being discussed. The real estate industry is also calling for a reduction in real estate transfer tax, a reduction in bureaucracy and a discounted sale of public land in order to improve the situation on the market.

Given these challenges, the federal government's response will be crucial. The planned measures to create new living space could be interpreted both as a response to the current crisis and as a step towards sustainable housing policy.

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