Germany’s housing market adjusts to permanent scarcity
Germany's housing shortage has now definitively crossed an important line. What was once treated as a cyclical undersupply
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Germany's latest IW-Consult city ranking signals a national economy fragmenting into specialised growth nodes. Mainz keeps its grip on the top spot for momentum. Frankfurt rises on the strength of the country's most powerful digital infrastructure engine. Potsdam emerges as the new infrastructure leader. Berlin continues to lose altitude. For real estate capital, the result is a far more uneven map of where rental growth, talent and tax revenue are forming the next investment opportunities.
Gesa Crockford of ImmoScout24 captured the central message. “Good infrastructure, positive development dynamics and quality of life are key factors in the attractiveness of residential locations and have a significant influence on the value development of real estate.” The 2025 results show clearly where these forces are converging and where they are pulling apart.
IW-Consult analysed 71 cities above 100,000 inhabitants using over 100 indicators and 50,000 data points across current conditions, five year momentum and a new infrastructure index covering research, transport, education, digitisation and climate resilience. Together the indices reveal not only where strength is entrenched but where future demand is forming.
Mainz again ranks as Germany's most dynamic city. The Biontech effect still defines its trajectory with strong productivity and GDP per capita growth and expanding knowledge intensive services. For investors this translates into rising demand for research oriented offices and stronger household incomes feeding residential absorption. The weakness is clear. Mainz ranks 43rd in the infrastructure index. Rapid growth with lagging transport, education and digital capacity may support rental growth now but limits how far momentum can run without significant public investment.
Frankfurt climbs to second place in the dynamic ranking. The strongest increase in municipal tax revenue nationwide and a sharp rise in highly qualified workers underline the city’s reliance on its data centre economy. A companion IW/Detecon assessment quantifies the effect. Data centre GDP in the FrankfurtRhineMain region has roughly doubled in five years. In Frankfurt itself growth approached 90 percent compared with 16 percent for the wider economy. Every euro generated in data centres produces another 51 cents of economic output, 24 cents locally. The sector contributed €405 million in taxes in 2023.
The dependence is clear, and so are the constraints. Béla Waldhauser of the Alliance for Strengthening Digital Infrastructures warned that Germany and Frankfurt face limited power capacity, high energy costs, lengthy approvals and land shortages. Operators now compare Frankfurt with Scandinavian locations offering cheaper electricity and more space. The Frankfurt story remains compelling, but its continuation depends on policy choices that secure energy and network capacity.
The new infrastructure index is led by Potsdam with top scores for university density, STEM research, fibre optic coverage and bridge quality. It ranks third in quality of life, 12th in dynamics and 19th in the level ranking, the best position of any major East German city. Strongest developments are in rental prices, unemployment, crime clearance and knowledge intensive services including cyber security and life sciences. The city is well positioned to benefit from future SVIK investment and increasingly absorbs the spillover Berlin cannot accommodate.
Regensburg and Ingolstadt complete the top three on infrastructure. Regensburg performs strongly in climate and education. Ingolstadt leads in gigabit connectivity in schools, fibre rollout and electric charging station density. Both offer more moderate entry pricing than Munich or Frankfurt and score consistently across labour market and economic categories.
Core markets still dominate the level ranking: Munich first, Stuttgart second, Ingolstadt third. Freiburg stands out as one of only two cities in the top 15 across level, dynamics and infrastructure. Yet strains are visible. Munich’s quality of life ranking has slipped from second to tenth due to a negative migration balance driven by high housing costs. This narrows the scope for future rental growth without political reaction or further displacement of the workforce it depends upon.
Berlin’s position is more concerning. The capital drops to fourth in dynamics, its first exit from the top three since 2016. Weak housing construction in an already tight market and rising youth unemployment weigh on its score. Berlin ranks only 36th in infrastructure and 33rd in the level ranking, behind Potsdam. The growth frontier in the capital region is shifting outward and investors must increasingly think in Berlin Brandenburg terms rather than relying on the capital alone.
The lower end of the table reinforces this divergence. Duisburg, Bremerhaven and Gelsenkirchen sit at the bottom of the level ranking with low female employment and high welfare dependency. Hamm, Salzgitter and Duisburg occupy the final three positions in the infrastructure index, with gigabit coverage in schools ranking 68th, 69th and 71st respectively. “The bottom three cities would need to make significant investments,” said Hanno Kempermann of IW-Consult. Wolfsburg ranks last in dynamics with the weakest scores for real estate, quality of life and economic momentum. Erlangen falls 38 places after a steep decline in tax revenue. By contrast Bonn rises 36 places, Koblenz 31 and Heidelberg 30.
Three filters emerge. First, follow the sector clusters rather than the city labels. Life sciences in and around Mainz, digital infrastructure in FrankfurtRhineMain and research anchored cities such as Potsdam, Regensburg and Freiburg define Germany’s strongest growth paths. Second, treat infrastructure as a leading indicator. The new index and the SVIK fund reveal where public money will reinforce long term demand. Third, separate the upgraders from the decliners. Cities such as Bonn, Koblenz and Heidelberg show genuine momentum. Others, including parts of the Ruhr and Wolfsburg, show deterioration that must be priced in.
Horst von Buttlar of WirtschaftsWoche noted that innovative ideas and digital progress are now particularly important for Germany’s cities. The IW-Consult ranking shows where that progress is emerging and where structural erosion is setting in. For real estate portfolios the hierarchy has shifted and strategies must now shift with it.
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