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Housing Construction out of Sync with Demand

The pace of housing construction in Germany has quickened – but in the wrong regions. This is the upshot of a survey conducted by the IW German Economic Institute in Cologne. It suggests that around 245,000 new apartments were created nationwide – a year-on-year increase by 14 percent. But in many places, the building activity is out of touch with the forecast demand. While the number of flats created in rural areas is excessive, housing in the metropolises remains in short supply. Just 66,000 of the recently completed flats were built in major cities of more than 100,000 residents. This contrasts starkly with an actual urban demand of at least 102,000 new flats annually between now and 2020. The figures show that building activities in major cities would have to expand by more than 50 percent to meet demand for housing.

Construction Activity in Major Cities Lags behind Demand

The gap between housing demand and building activity is particularly conspicuous in Berlin. Germany's first city would have to achieve an annual completions rate of 20,000 to stay abreast of the steadily rising demand. Last year, though, no more than 8,744 flats were completed. Germany's other leading cities present a similar picture. The only cities where completions match demand are Düsseldorf, Bremen and the shrinking cities of Essen and Dortmund. The chief cause that experts cite to explain the low level of building activity is the short supply in building land. Demand for land far exceeds supply, and prices are surging as a result.

Regulatory efforts such as the rent freeze have also dampened the appetite for new developments, according to the IVD Federal Investment and Asset Management Association. During the first half of the year, only 140,435 planning permits for apartments were issued, a year-on-year increase by just 2.6 percent. The growth rate in 2014 still equalled 9.6 percent.

Excessive Building Activity in Rural Areas

The situation in many economically undeveloped regions contrasts starkly with the major cities. In the hill country of Eifel or Black Forest, but also in large parts of East Germany, the number of apartments completed is far too high. Many municipalities seek to attract new residents and businesses by generously zoning development land. In combination with the low interest rates, this has resulted in a construction boom that is driving up vacancies in existing building stock in these regions, or so the survey suggests.