Why Germany’s housing crisis is expected to drag on
Germany needs new homes to address its shortage – but fewer new flats are being built now that at any time in the last 16 years.
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Renters and would-be buyers alike are feeling Germany’s current housing crisis deep in their wallets.
Rents around the country were up a record 7.5 percent in the first quarter of 2023. In Berlin, they rose 27 percent since November. Home prices are also up – albeit more modestly – and more than a million households are spending at least half their income on rent.
One of the main reasons for skyrocketing rents is simply a function of the most basic principle of economics – there’s just not enough housing supply to meet housing demand. It leaves both renters and buyers fiercely competing against each other for an ever shorter list of available places.
READ ALSO: More than a million German households spend half their income on rent
That’s also a problem that takes time to fix. A home obviously can’t simply be built overnight. Any uptick in new construction to help increase housing stock won’t get noticed until a few years from now.
So even if it wouldn’t immediately solve the housing problems of today – are enough new homes being built now for people in Germany to get some relief in a few years?
Data out from the Federal Statistics Office Wednesday suggests not.
In fact around 30 percent fewer housing permits were issued in March compared to the same time a year ago. That means that fewer projects even have the permission to break ground, let alone begin to actually build. This is the lowest number of housing starts the country has seen in 16 years.
The statistics authority says inflation is a big part of this, with interest rates for building loans and the price of construction material having shot up due to Russia’s invasion of Ukraine.
READ ALSO: Germany sees record high rent increases in 2023
The Association of German Construction Industries is now warning that the government needs to rethink its policy of subsidising housing – otherwise new construction projects could plummet.
Builder Vonvovia has already stopped its new construction plans for 2023, arguing that rents of €18-20 per square metre would be necessary to make many new housing projects profitable. The national average of rent of currently around €8 per square metre and €12.55 in Berlin. Munich – Germany’s most expensive – is currently the only city with average rents in Vonvovia’s quoted range.
Vonvovia claims that around 40 percent of its construction costs are linked to government regulations in Germany, and that relaxing some of these could help alleviate price pressures.
The federal government and many state governments currently have housebuilding targets. Berlin’s new grand coalition of the Social Democrats and Christian Democrats currently aims to build 20,000 new places a year with 5,000 of that for affordable social housing.
The federal government’s target is 400,000 new homes a year, but Housing Minister Clara Geywitz has already said the government may manage only half that number in 2023.
READ ALSO: German government set to miss target for new homes this year
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Renters and would-be buyers alike are feeling Germany’s current housing crisis deep in their wallets.
Rents around the country were up a record 7.5 percent in the first quarter of 2023. In Berlin, they rose 27 percent since November. Home prices are also up – albeit more modestly – and more than a million households are spending at least half their income on rent.
One of the main reasons for skyrocketing rents is simply a function of the most basic principle of economics – there’s just not enough housing supply to meet housing demand. It leaves both renters and buyers fiercely competing against each other for an ever shorter list of available places.
READ ALSO: More than a million German households spend half their income on rent
That’s also a problem that takes time to fix. A home obviously can’t simply be built overnight. Any uptick in new construction to help increase housing stock won’t get noticed until a few years from now.
So even if it wouldn’t immediately solve the housing problems of today – are enough new homes being built now for people in Germany to get some relief in a few years?
Data out from the Federal Statistics Office Wednesday suggests not.
In fact around 30 percent fewer housing permits were issued in March compared to the same time a year ago. That means that fewer projects even have the permission to break ground, let alone begin to actually build. This is the lowest number of housing starts the country has seen in 16 years.
The statistics authority says inflation is a big part of this, with interest rates for building loans and the price of construction material having shot up due to Russia’s invasion of Ukraine.
READ ALSO: Germany sees record high rent increases in 2023
The Association of German Construction Industries is now warning that the government needs to rethink its policy of subsidising housing – otherwise new construction projects could plummet.
Builder Vonvovia has already stopped its new construction plans for 2023, arguing that rents of €18-20 per square metre would be necessary to make many new housing projects profitable. The national average of rent of currently around €8 per square metre and €12.55 in Berlin. Munich – Germany’s most expensive – is currently the only city with average rents in Vonvovia’s quoted range.
Vonvovia claims that around 40 percent of its construction costs are linked to government regulations in Germany, and that relaxing some of these could help alleviate price pressures.
The federal government and many state governments currently have housebuilding targets. Berlin’s new grand coalition of the Social Democrats and Christian Democrats currently aims to build 20,000 new places a year with 5,000 of that for affordable social housing.
The federal government’s target is 400,000 new homes a year, but Housing Minister Clara Geywitz has already said the government may manage only half that number in 2023.
READ ALSO: German government set to miss target for new homes this year
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