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20 06 2019

Housing Demand to Keep Rising for Decades

The demand for housing in Germany will keep increasing for decades to come – in spite of the prospective long-term decline in population. This is the upshot of a survey conducted by Bernd Raffelhüschen and Roman Witkowski at the University of Freiburg. Reasons for this development include the rise in residential floor space consumption and the growing number of single- and two-person households, as the survey “Socio-Demographic Change and Regional Real Estate Markets” found.1

By 2030, the average German will have a need for 49 square metres of dwelling floor area, up from 45 square metres as recently as 2015. In a parallel development, the average number of persons per household keeps going down: While the average number in 2015 was 1.99 persons, it will have declined to 1.86 persons by 2030.2 Although researchers assume due to the demographic change that the German population will start shrinking as early as 2021, the number of households will nonetheless increase by six percent. It will not return to the present level until 2060.
 

Price Growth to Continue

With this in mind, the experts believe that property prices will keep going up in the long term, especially in coveted locations and in the metro regions in general. In fact, the survey suggests that the concentration of the population in so-called swarm cities will intensify between now and 2060. This goes particularly for the Länder in East Germany, but long-term for West Germany as well. The survey assumes an annual net immigration of 200,000 people on average for Germany, with most of these moving to the major cities. The survey authors therefore expect housing demand to focus particularly on multi-unit dwellings.

As it happens, however, new-build housing construction has stalled precisely in this segment. During the first quarter of 2019, the number of approved flats in multi-unit dwellings declined for the first time in recent years. Planning permissions experienced a dip by 4.4 percent over prior-year period. For what it’s worth, the number of single-family detached homes increased, even though this does little to defuse the housing demand in the conurbations.3
 

Housing Development Targets Clearly Missed

The housing offensive announced by the Federal Government has been a flash in the pan so far. An average completions rate of 375,000 flats per year was the lofty goal set by the Grand Coalition, but only 285,900 flats were actually completed in 2018.4 Similarly, it is expected that no more than 315,000 to 320,000 units will be completed in 2019.

The problem is exacerbated by the fact that the body politic continues to focus on regulatory measures in the area of landlord-tenant law—for instance, by further tightening the so-called rent freeze—instead of promoting the construction of new housing.5 The imbalance between short supply and increased demand for housing is unlikely to be remedied any time soon, making it just as unlikely that the strained market situation in the metro regions will ease in the foreseeable future.
 

1 www.tagesspiegel.de/wirtschaft/immobilien/immobilienpreise-bis-2060-bleibt-das-wohnen-teuer/24377186.html
2 www.handelsblatt.com/finanzen/immobilien/wohnungsmarkt-der-preisboom-bei-immobilien-wird-auch-in-zukunft-anhalten-aber-nicht-ueberall/23872680.html?ticket=ST-1835520-sW3mZAZkbgFm5cYzXzQO-ap1
3 www.welt.de/finanzen/immobilien/article193832421/Ruecklaeufige-Baugenehmigungen-Das-steckt-dahinter.html
4 www.destatis.de/DE/Presse/Pressemitteilungen/2019/05/PD19_201_31121.html
5 www.tagesschau.de/inland/mietpreisbremse-barley-103.html