KfW Research: Germany is approving enough new residential units – they just need to be built

• Building permits have been issued for 600,000 homes
• Advancing urbanisation is putting pressure on metropolitan regions
• 4.4 million new homes need to be built by 2030 to meet rising demand

Around 278,000 new housing units were completed in Germany in 2016, but new construction is still lagging far behind demand, especially in metropolitan regions. In the past year, 90,000 to 120,000 fewer homes were completed than necessary to eliminate existing housing shortages. A current analysis by KfW Research in collaboration with the research institute empirica demonstrates that the ongoing trend towards urbanisation and migration inflows are driving the need for new construction. What there is no shortage of, however, are building permits, with 600,000 accumulating over the past years and waiting to break ground.

‘In the public debate, fingers are quickly pointed at the local governments whose lengthy approval procedures are assumed to be responsible for the housing shortage. However, this accusation hardly stands up to empirical scrutiny.The main reason not enough homes are being completed is that approved building projects are often not finished at all or only with a delay’, commented Dr Jörg Zeuner, Chief Economist of KfW Group.

There are various reasons for delays in the implementation of building approvals. It often takes more than two to three years to complete large multi-family buildings, even when built at a fast pace. Another reason is that the construction sector is struggling to keep up as it has been operating at capacity for years as a result of the ongoing cyclical upswing. Especially in the large metropolitan areas, we also see the phenomenon that investors stock up on building permits and initially withhold the corresponding projects as they anticipate rising rents and real estate prices in the future.

Without stepping up construction activity, housing shortages and rents will keep rising in the coming years, especially in Berlin, Hamburg, Munich and the Rhine-Main region. The population in Germany will increase to a record level of around 83 million by 2020 as a result of the inflow of workers, especially from EU member states, putting more pressure on housing markets, above all in metropolitan areas. In order to meet the demand for new homes in the long term, some 4.4 million new residential units will have to be built by 2030, around half of which will likely be in the form of one or two-family houses.

‘Reducing the enormous overhang of building permits that has already accumulated would considerably ease the pressure on the strained housing markets. In order to improve the situation in the medium to longer term, we need not just recommendations on how to reduce the building costs, but ideas for holistic approaches so that construction projects can generally be completed faster’, said Zeuner.

But the current analysis by KfW Research also shows that the problems on the housing markets will be shifting in the future. While the debate is currently focusing on acute shortages in metropolitan areas, structural vacancies will become the prime concern of the analysis of housing policy and municipal development. ‘The population is expected to decline after the year 2020. If the trend towards urbanisation continues, rising vacancies, especially in the structurally weak, sparsely populated regions, will become Germany’s economic-policy challenge of the coming decade.’

The current KfW study on the German housing market is available at:
www.kfw.de/KfW-Konzern/KfW-Research/Wohnungsbau(only in German)