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German cities struggle to curb housing shortage

July 22, 2019

For years Germany's real estate market has been plagued by a housing shortage, particularly in big cities. A new study says that is unlikely to change anytime soon. Prices will remain high, but there is a silver lining.

Apartment buildings in Munich
Image: picture-alliance/R. Schlesinger

Finding affordable housing has grown increasingly difficult for people in Germany. The market is empty, particularly in big cities. That, in turn, means prices are on the rise. Indeed, housing space is a rare commodity in the country.

The German Economic Institute (IW) in Cologne has presented concrete figures to underline the housing shortage. Over the past three years, about 283,000 new apartments were built nationwide, according to a recent IW study. However, this only covers 80% of the demand. If the gap between supply and demand is to be closed, about 340,000 new apartments would have to be built this year and in 2020. Now it's up to the municipalities, Ralf Henger, co-author of the study, told DW. They must try to make building easier, he said.

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Large cities in particular lag behind when it comes to construction, according to the study. In Cologne and Stuttgart, for instance, only about half of the apartments the IW estimates are needed to meet demand were built. Munich, Frankfurt and Berlin also build fewer apartments than needed, even if the discrepancy there is smaller. The same is true for many more cities: The number of apartments built is insufficient. "Not only is there a shortage of apartments at present, but there is also a need for a further increase in construction activity in the longer term," Henger and his co-author, Michael Voigtländer, wrote.

Heidelberg housing demand

Lack of personnel

There are various reasons for the shortages, said Tobias Just, managing and scientific director of the International Real Estate Business School at the University of Regensburg. "The most important factor is access to building land," he told DW. "To a certain extent, there is simply a lack of building opportunities; in addition, the approval process in a number of cities is still too slow." The authors of the IW study came to the same conclusion, saying the cities can't keep up with demand.

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In addition, citizens have been protesting against new construction projects in areas where construction is feasible. "They rightly say that this would affect their quality of life," Henger said, adding that this means even when buildings are going up, this does not happen as speedily as possible.

That's not all, according to Just: "Construction costs have risen in recent years." That, he said, has led to construction being carried out for one type of building in particular — the relatively expensive kind.

People line up around the block to visit a house for rent
With supply so low, people are lining up around the block to find housing in GermanyImage: imago/Friedrich Stark

Tight urban market

The market in large cities and university towns is particularly tight. High influx, insufficient personnel in building offices, strict regulations and a shortage of skilled workers in the construction industry are additional obstacles to growth. The IW study's authors warn that Germany's cities will have to make an effort to slow down rising rental prices.

The most important thing is to expand access to building land, Just said. "This also means that we have to think in terms of larger cities — we can't assume that we will be able to add 300,000 housing units to the existing structures every year." Instead, cities will have to grow more on their fringes. Peripheral locations would have to be made more attractive, for instance by relocating state authorities to smaller cities and expanding public transport.

Building boom in structurally weak regions

The situation in rural areas is quite different, according to the IW study: "While there is a real struggle for housing in the areas with a high population density, too much is being built in structurally weak districts and cities." Over 50% more apartments than actually needed were built in 69 of Germany's 401 independent cities and districts these past two years, according to the study. As a result, many properties remain vacant.

In cities, however, the problem is bound to stay urgent for the foreseeable future. Just expects rents to continue to rise, though not quite as sharply as in recent years because apartment construction is on the rise and the number of people moving to cities has decreased. "Prices for real estate, on the other hand, are likely to rise more sharply than rents due to the fact that institutional investors have few alternatives to real estate," he said, adding that because of the weak returns on other forms of investment, they are literally pushed into real estate, Just said.

There is a silver lining on the horizon, however.

The housing shortage problem might be cushioned if the authors' estimates come true — demand, they estimate, will fall to about 260,000 apartments per year by 2025 and to about 246,000 apartments per year by 2030. The main reason is the expected drop in immigration, which is unlikely to remain permanently at a level of more than 400,000 people per year. Until then, however, people are likely to hear and read: "Urgently seeking apartment."

Kersten Knipp
Kersten Knipp Political editor with a focus on the Middle East