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25 01 2018
Housing Construction Expected to Stagnate

The number of residential completions in Germany has been going up steadily in recent years, yet the momentum in housing construction is likely to start slowing as early as 2019. This is the upshot of the latest forecast made by the DIW German Institute for Economic Research in Berlin.1 While the volume of new construction will soar by another eight percent in 2018, according to the figures, the growth rate will slump back to four percent just one year on. In real money terms, i.e. with the rise in construction costs factored in, the increase in housing development investments will actually rise by around five percent in 2018 and by only one percent in 2019.

What makes the projected stagnation in housing construction particularly ominous is the fact that the growth rates of recent years, brisk as they have been, continue to fall far short of the mark. An estimated 300,000 new flats were raised in Germany in 2017, and the figure could go up to 320,000 in 2018,2 but according to the Federal Ministry of Transport, Building and Urban Development, an actual 400,000 new flats would have to come on-stream annually to cover Germany’s demand.3 If the growth in construction were to stall now, it would imply that the housing shortage will actually be exacerbated, especially in major cities.

DIW Recommends further Densification

The DIW points out in this context that the number of approved new residential buildings has stagnated since 2016, and is likely to have declined for the first time in years in 2017. The DIW researchers blame this on the fact that the building industry is operating at capacity, but also on the short supply in zoned land in sought locations. Scientists are therefore calling on policymakers to shift their focus to further densification. “Topping up buildings, inserting infill housing, and closing gap sites are options with enormous potential to create housing precisely where demand is keen,” as the DIW put it. The economic research institute therefore advises the body politic to introduce investment allowances for infill densification projects to make it a more lucrative proposition for investors.A growing number of voices in the real estate industry, however, are suggesting that the problem has less to do with any lack of interest among investors and everything to do with the difficulties in getting such projects approved.4 According to them, the permit procedure for adding extra floors and closing gap sites is very complex and slow, and this has already led to a sharp drop in planning permissions for infill densification programs. Between January and September of 2017, the number of planning permissions issued for building works in existing buildings experienced a year-on-year decline by 21 percent nationwide.5