Empirica: completions collapse to postwar low as affordability ceiling hit

German residential construction has fallen to its lowest level since the founding of the Federal Republic, with fewer than 190,000 apartments completed in 2025 and further declines expected in 2026, according to Empirica's first comprehensive housing market report.

Single-family home completions have collapsed to a postwar low of 54,400 units in 2024, breaking records set during every previous construction cycle. The 2025 figure will be lower still, with no recovery in sight for 2026. The housing boom preceding the interest rate crisis bypassed single-family construction entirely, meaning the current slump is hitting from an already depressed baseline.

The blockage has shifted from prices to incomes. Empirica argues that a "turnaround" has occurred: income growth no longer keeps pace with housing costs, even as purchase prices stagnate. This marks a departure from recent years when incomes largely tracked price increases. Metropolitan areas, expected to show greater price resilience, offered no protection. Purchase prices for existing condominiums fell roughly 10% nationwide following interest rate rises since 2022, with the sharpest corrections in previously strong markets.

New-build condominium prices barely declined. "If buyers' willingness to pay falls below construction costs, it is not the sales price that falls, but construction and sales that cease," Empirica observes. With interest rates expected to remain between 3.1% and 3.5% for ten-year fixed mortgages in 2026, and affordability constrained by wage growth barely exceeding inflation, construction activity will remain depressed.

New-build economics require rents of around €20 per square metre in large western German cities to cover construction and land costs. Such rents are achievable only in Munich, Frankfurt and Hamburg. Elsewhere, projects remain unprofitable. Land prices have not adjusted to reflect this reality, leaving the market in structural stagnation.

Annual housing demand stands at 225,000 units currently, rising to 260,000-270,000 after 2030 due to aging, household fragmentation and regional shifts. Supply will fall short by at least 35,000 units annually in 2025 and 2026, widening the shortage.

Asking rents for existing apartments are following new-build trajectories with a lag. Following a 4.4% increase in 2025, empirica expects 3-4% annual growth through the remainder of the decade, pushing existing rents toward €15-16 per square metre in major cities.

The market has bottomed, Empirica concludes, but structural constraints—stagnant land prices, elevated construction costs, constrained affordability—are preventing recovery. German residential construction will remain depressed even as the shortage intensifies.