Germany’s housing crisis to escalate further

Surging Rates and Home Prices Pressure Homebuyers
Source: Pixabay

Germany’s housing crisis is expected to worsen as the number of building permits for dwellings fell by 25.9% year-on-year in May, according to the Federal Statistical Office (Destatis). Only 23,500 new homes received approval for construction in Europe’s largest economy during that month, marking a continued decline. Rising construction costs and challenging financing conditions were cited as the primary factors contributing to this decrease.

Residential construction prices in Germany saw an 8.8% year-on-year increase in May, as reported by Destatis. However, this growth rate slowed down from the 15.1% increase observed in February. The situation is not anticipated to improve throughout the remainder of the year, with a spokesperson for the German Construction Industry Association stating that permits are likely to continue declining due to cost escalation and reduced government subsidies.

Germany is currently grappling with a shortage of 400,000 apartments, a number projected to increase to as many as 700,000 by the mid-2020s, as indicated by the German Property Federation (ZIA). Experts believe that the government’s target of constructing 400,000 new apartments annually will continue to be missed. The ifo Institute for Economic Research estimates that the annual number of completions will drop to 175,000 by 2025.

Acknowledging the inadequacy of the current construction efforts, Klara Geywitz, the Minister for Housing, Urban Development, and Building, conceded in April that the creation of 300,000 new apartments is significantly insufficient.

The housing shortage has led to a steady increase in rents across Germany. In the second quarter of the year, rents for existing apartments and new buildings rose by 2.5% and 2.2% respectively, quarter-on-quarter, according to an analysis by online marketplace ImmoScout24.