Germany’s housing gridlock is blocking even modest fixes

Although REFIRE has been reporting on the rise of Tiny Houses in Germany for several years, we hadn’t fully connected that niche trend with the deepening crisis of affordable housing now gripping the country. When we last looked at these dwarf dwellings, rent levels were lower, and the collapse in new hoúsing construction was still some way away.

Germany is now stuck in a housing crisis—and it’s not alone. As Irish economist David McWilliams recently argued, you need to apply the "Dunkirk strategy" when faced with an intractable problem. That strategy saw the British War Cabinet in WW2 mobilise every vessel—yachts, tugboats, pleasure boats and trawlers—to rescue stranded troops across the Channel in a moment of national peril.

Drawing a parallel with Ireland's housing shortage, McWilliams argues that when your policy is in tatters, you don’t wait for a Navy of top-down solutions—you commandeer whatever floats.

In Ireland’s case, he points to the vast underused resource of residential back gardens, urging planners to permit small homes—modular, movable, affordable—to be built in them. Desperate times call for desperate measures. Proposals are now underway to legalise modular infill in private gardens. Similar moves are gaining traction elsewhere. In the US and Canada, a quiet, creeping YIMBYism has transformed housing supply in cities like California, Seattle and Vancouver, where planning codes have been retrofitted and permits for these so-called Accessory Dwelling Units have more than tripled in the last three years. Families are solving the crisis themselves, one garden laneway at a time.

In Germany, talk of a Wohnwende and modular ambition has yet to translate into real flexibility. But something is stirring. Across the republic, from Dortmund to Handewitt, Lübeck to Bielefeld, Tiny House projects are springing up, usually delayed, often oversubscribed, and invariably entangled in regulatory trench warfare. The planning regime, still built around single-family layouts or tightly coded social housing, has made no space for micro-living - at least not as a legal category. Yet demand is quietly growing, not just among idealists, but from the group the system is least equipped to deal with: the asset-rich, space-poor, post-family over-50s.

What Germany’s Tiny House moment reveals is not a lifestyle trend—it’s a structural symptom. As a housing solution, these units are rarely viable at scale. But as a barometer of dysfunction, they speak volumes.

This June’s sixth hosting of the New Housing fair in Karlsruhe wasn’t full of students or eco-warriors. It was packed with fifty- and sixty-somethings looking to downsize, redeploy family land, or rent out a modular holiday cabin. A generation that once looked up the property ladder is now looking down it. Tiny House manufacturers like WST Tragwerke and Rolling Tiny House GmbH increasingly report that 70–90% of serious inquiries come from this older demographic - many with capital, but no interest in climbing up stepladders into sleeping lofts.

Some are drawn by flexibility, others by tax advantages: a mobile home on a trailer avoids some restrictions under the Baugesetzbuch and can be written off faster. But most, according to Bundesverband Mikrohaus founder Peter Pedersen, seek dignity, independence, and legal certainty in retirement. For many, it’s the only viable way to live near their children or grandchildren in a country where a second unit in your garden is still effectively illegal.

A system that punishes improvisation

The regulatory barriers are formidable. As Immobilien Zeitung rightly noted in a recent article, nearly every Tiny House development currently underway in Germany has been delayed by zoning objections, environmental lawsuits, or planning revisions triggered by ECJ rulings on Section 13b BauGB which governs suburban development. Even when land is available, the house compliant, and the buyer solvent, it’s often the lack of a planning category, or a blanket aversion to “deviation from the B-Plan”, that kills momentum.

In a sign of the times, architect Van Bo Le-Mentzel, one of the movement’s early provocateurs, is now selling his iconic mini-homes on eBay to fund a new Baugruppe. His pivot from Wohnmaschine to mid-rise Gemeinwohlbau reflects a wider reality: it’s easier to make an architectural statement than to get a building permit. Municipalities like Dortmund are trying - its Tiny Village project may house 40–50 families on a disused sports field - but construction there is unlikely before 2026.

What Le-Mentzel and others have learned is that what’s missing is legal and procedural elasticity. A rigidity weighed down by competing definitions: is it a mobile home, a recreational unit, a semi-permanent rental product? Answer: it depends which federal state you ask.

We’re not suggesting Germany’s housing crisis can be solved by putting micro-homes on pontoons or forest plots. But the growth of Tiny House developments—often on point foundations, often funded in cash, and driven by end-users rather than developers—signals a demand for something the formal housing system no longer provides: incremental, low-risk, small-footprint homes in existing communities. Yet Germany continues to treat the Tiny House as a policy curiosity—something for exhibitions, not legislation.

REFIRE does not believe Tiny Houses constitute an investable asset class. But they may be a canary in the regulatory coal mine. As we noted in our recent coverage of Gebäudetyp E, serial construction and subsidised housing finance, the real bottleneck in Germany is not building technique. It’s planning permission, legal clarity, and a willingness to deviate from the B-Plan to meet real need.

Some developers, particularly those running senior parks or short-term holiday concepts, are already watching this space. The tax treatment of semi-mobile homes, financing conditions for micro-units (EthikBank and Volksbank im Wesertal are quietly building portfolios), and the potential bundling of tiny homes into care models or ESG-aligned thematic funds will all bear watching. But the broader point is this: the system is so stuck that even small, half-legal solutions now seem radical.

Germany doesn’t need a revolution in how it builds. It needs permission to try small things without being punished for it, especially when those small things meet real market demand. And that might just start with a prefab on wheels, in a back garden, owned by someone who just wants to stay close to their family.