Germany Lacks 300,000 Family Homes
While the public debate revolves primarily around the blatant supply shortage in the rental housing sector, a recent survey found that the supply of condominiums and detached or semi-detached homes in Germany falls well short of demand as well. According to calculations done by research institute Empirica, the annual demand for new construction is 151,000 units, which contrasts starkly with the actual completion figure of 104,000 homes annually since 2012. As a result, the supply gap for homes has grown to a total of 300,000 units.1
Demand for condominiums as well as for detached and semi-detached homes is strong, which is explained not least by the favourable interest rate level and the associated affordability of real estate financing. Add to this the high catch-up potential when it comes to homeownership – as only 45 percent of all German households live within their own four walls, less than in most other European countries.
Prices for Private Homes Keep Pushing up
The fact that the supply side is unable to stay abreast of the elevated demand for homes is reflected in rising prices for condominiums and detached or semi-detached homes. And the selling-price hike continues, especially in the major cities, as the latest Empirica real estate price index shows.2 It suggests that urban selling prices for new-build condominiums experienced a quarter-over-quarter growth of 2.3 percent in Q2 2019, while the year-on-year growth equalled 8.7 percent. Prices for new-build detached and semi-detached homes in independent cities actually increased by 3.8 percent quarter on quarter and showed a one-year growth of 9.9 percent.
The findings of the aforementioned Empirica survey come as no surprise therefore when they conclude that the real estate boom makes the risk of an excess completions volume and a possible rise in vacancies seem minimal. The survey admits that Germany does have a few shrinking regions where more homes are being built than would seem necessary, mathematically speaking. Yet the survey goes on to say that this risk concerns only around 5,000 units per year or four percent of the volume of new construction – a negligible figure when compared to the enormous supply gap.
Number of Planning Permits for Condominiums Declining
There is no reason to expect the shortage in homes—meaning condominiums and detached or semi-detached homes—to be alleviated any time soon. During the first five months of 2019, the number of planning permits for condominiums took a nosedive, dropping by 11.4 percent for condominiums and by 4 percent for semi-detached houses year on year. Only the number of planning permits for single-family detached homes increased, and did so by a modest 2.3 percent.
Policy makers would like to reverse the trend – the development land commission, which is part of the Federal Ministry of the Interior, Building and Community, recently presented a list of recommendations for action to breathe new life into housing construction.3 For instance, an obligation to develop land is to be imposed on property owners to force them to develop the zoned development land they own. But how effective the recommended measures would be and whether they will be implemented at all, remains to be seen. No matter what, the housing development target of the Federal Government of raising 1.5 million residential units by 2021 is unlikely to be achieved, the way things look now.4