Housing Construction in Major German Cities far too Slow
The number of flats built in Germany is currently far too low to keep up with demand, and most conspicuously so in the country’s metropolises. This is the gist of an analysis recently conducted by the IW German Economic Institute in Cologne.1 The institute developed a housing demand model that uses demographic forecasts, among other data, to determine the building demand for all of Germany’s 401 districts. If you compare the demand thereby identified with the actual building activity, it becomes quite obvious that the nationwide completions rate has so far never exceeded 83 percent of the needed accommodation, and the rate in major cities is often well below this percentage.
Slow Housing Construction Coincides with High Rent Rates
According to the IW survey, housing construction is particularly slow in Cologne. Residential developments in the largest city of North Rhine-Westphalia between 2016 and 2018 covered only 46 percent of the actual demand. The situation is similarly dramatic in Stuttgart, where demand was covered only to 56 percent, as well as in Munich (67 percent) and Berlin (73 percent). Rather than being limited to the metropolises, the massive shortfall in housing development was also noted in certain campus towns by the survey. This contrasts with the building performance in Hamburg, Düsseldorf and Frankfurt am Main, where the demand was met to more than 79 percent each.
The building activity in the cities directly impacts the rent performance, as the IW survey demonstrates. In cities like Hamburg, Düsseldorf and Frankfurt, where more houses are built, rent growth is slower than in Berlin, Munich and Stuttgart where the number of residential completions is relatively modest. The IW Economic Institute therefore encourages municipalities to step up their efforts in housing construction as an effective way to slow rent and price growth.
Association of Towns and Municipalities Demands Simplification of Building Law
The German Association of Towns and Municipalities (DStGB) recently voiced its opinion on how to get housing construction in Germany up to speed.2 The association blames the slow pace of new-build construction on the profusion and strictness of all the red tape that comes into play. It believes German building law should be simplified and planning approval process be accelerated. It also urges municipalities to create more jobs in the building authorities. Now is not the time to talk, it stated, but time for quick action.
If nothing else, the decline in incoming migration suggests that the demand for new housing will level out in a few years’ time. A survey by the IW Economic Institute predicts that the annual demand of 341,700 flats during the years 2016 through 2020 will drop to 260,200 by 2021 and to 245,500 by 2026. However, this will apply only if housing construction is stepped up quickly over the next two years. Otherwise the backlog will simply be added proportionately to the demand of subsequent years.