Germany’s housing problem is no longer supply — it is viability

The nominal target has not changed. The federal government still officially aims to build 400,000 new homes annually. What has changed is that almost nobody in the industry believes it any more. At the 17th Wohnungsbau-Tag in Berlin last week, the gap between that ambition and the reality on the ground was laid out with unusual bluntness, and the figures did not flatter the political class.

In 2024, Germany completed 251,900 homes, a drop of 14.4% on the previous year. IW Cologne now forecasts completions of around 215,000 for 2026, barely half the government's stated target. Planning permissions, the leading indicator for future supply, hit their lowest level since 2010 in 2024, and 29,000 approved permits lapsed entirely unused, the highest figure since 2002. Meanwhile 9.9 million people are living in overcrowded housing, 1.4 million more than at the start of the decade. The Pestel Institute puts the overall housing deficit at 1.4 million units, a record high.

Germany’s housing problem is no longer primarily one of demand. It is a question of economic viability.

Robert Feiger, head of construction union IG-BAU, left no room for ambiguity. "Fewer than 200,000 new homes this year. That is not even half of what needs to be built at a minimum. This crosses a red line." Axel Gedaschko, President of the GdW housing association, went further. "If any building is taking place at all," he said, "it is only with public funding." It was a blunt description of a market in which privately financed rental construction has largely ceased to function.

The proximate cause of the paralysis is well understood. A new study by the ARGE Institute, presented at the event by construction cost expert Prof. Dietmar Walberg, put the numbers plainly. Pure construction costs in major cities now exceed €4,630 per square metre. Including land, the figure reaches around €5,400. To cover those costs, a developer needs a basic rent of at least €18 per square metre — "too expensive for anyone on an average income," as Walberg put it. Construction costs have already risen 32.6% since 2021, the sharpest increase since 1970.

The risk now is that those pressures intensify again. The war in Iran is already pushing up input costs, with building materials six to ten per cent more expensive as a direct consequence. Several speakers drew explicit parallels with 2022, when rising energy prices fed into inflation, triggered ECB rate hikes and tightened construction lending. Federal Building Minister Verena Hubertz herself acknowledged the fragility of the current recovery. Whether that upturn survives a second energy shock in four years is an open question.

Simple building, complicated politics

The seven-association Housing Construction Alliance, bringing together the DMB, IG-BAU, ZDB, GdW, BFW, DGfM and BDB, arrived at the Wohnungsbau-Tag with a four-point programme. The centrepiece is a legally defined "basic housing standard" under the proposed Building Type E legislation, intended to reduce costs by stripping out non-essential specifications while maintaining safety requirements. Schleswig-Holstein has already introduced a comparable standard, with construction costs reportedly around 14.5% below the national average.

The industry's position is straightforward. Developers will not build more cheaply unless they can do so with legal certainty. As Gedaschko and BFW's Martin Dornieden put it jointly: "We allocate the housing construction contracts, but unless there is compensation in the form of a financially relieving, drastically slimmed-down basic housing standard, we simply cannot award them any longer."

Alongside this, the alliance called for faster planning procedures, targeted funding for rents between €8.50 and €12.50 per square metre, and better data on housing starts. Without structural changes to costs, regulation and process, supply will not recover. The urgency is underlined by the state of social housing. Germany's social housing stock has fallen from around four million units in the late 1980s to approximately 1.05 million today — a 75% decline — while the alliance's demand of 100,000 new permanently allocated social units per year represents the minimum required simply to stabilise what remains.

Practitioners at the sharp end of project development were not inclined to let the political guests off lightly. Ioannis Moraitis, Managing Director of Berlin developer Hedera Bauwert, described the current situation with precision: "We are seeing a situation in which projects are no longer economically viable despite high demand. Rising construction costs, regulatory requirements and protracted procedures mean that many projects are not being realised." His broader point, that reducing building standards is necessary but insufficient without parallel reform of planning and approval processes, was one of the event's more useful contributions. Cutting the specification of a building does not help if it still takes three years to get a permit.

A coalition divided on the cure

The political arena produced the day's most revealing moment. SPD Finance Minister Lars Klingbeil, speaking the previous day at the Bertelsmann Foundation, had proposed establishing a Federal Housing Corporation, a state-owned developer empowered to build affordable housing directly at scale. Federal Building Minister Hubertz endorsed the idea at the Wohnungsbau-Tag itself. "At a time when housing is increasingly becoming a matter of survival," she said, "no idea should be off-limits." She acknowledged openly that implementing the proposal would require a constitutional amendment, currently needing a two-thirds majority in the Bundestag that the governing coalition cannot secure without opposition support.

The CDU's response was swift. Jan-Marco Luczak, the party's housing spokesperson, was direct: "I am sceptical about a state-owned housing association. Building a new structure takes time and money." His unspoken point was equally clear: a new federal body would face exactly the same structural obstacles as every other actor in the market.

Two philosophies, one coalition, and a housing crisis that is waiting for neither. The industry has set out both the problem and the conditions required to address it with unusual clarity. For now, however, the economic constraints remain in place, and large parts of Germany's housing demand will remain unmet at viable price levels.