Shortfall of 300,000 Flats
The stated goal of Germany’s grand coalition government in early 2018 was to ensure the construction of 1.5 million new flats nationwide by 2021. It has been evident for some time now that this goal will not be achieved. By just how much the goal will be missed was quantified at a recent conference of German construction ministers. Undersecretary Anne Katrin Bohle of the Federal Ministry of the Interior, Building and Community stated that she expects 1.2 million flats to be completed by the end of 2021 – which would be a shortfall of 300,000.1
But it’s far from a given that even the mark of 1.2 million flats will be reached. After all, only 287,000 flats were constructed in 2018 and 293,000 in 2019.2 This means that housing construction would have to gather considerable momentum this year and next year to achieve a total of 1.2 million by the end of 2021. Yet it is far from clear at this time whether and, if so, how badly the coronavirus crisis will impact the completions figures of 2020.
Development Land Release Act still being Fine-Tuned
At the mentioned conference, attended by the construction ministers of Germany’s 16 Länder, there was general agreement that the way forward in housing construction would necessitate the zoning of new development land above all. This, however, is hardly news because it has been clear for a long time that the development land shortage is a key reason why housing construction is not progressing as planned.
The observation that more development land would have to be released for the planned “housing offensive” was made as early as the housing summit convened at the German Chancellery in 2018. Two years on, in June 2020, the draft bill for the so-called Development Land Release Act was finally submitted, yet it remains in the fine-tuning process.3 In other words, it could be a good while yet before the planned law will have a positive effect on the expansion of housing construction in Germany.
Further Price Hikes to be Expected
Either way, it is safe to say that the housing shortage in sought-after regions in Germany will not be relieved before the end of 2021. The realisation is likely to have consequences for the further trend in prices. Since short supply is one of the factors for the price growth in the residential segment, a further increase in prices is to be expected.
For what it’s worth, the Federal Government has backed away from the idea of making the conversion of rental flats into condominiums harder with additional stumbling blocks. Hampering such conversions would probably have driven the supply in condominiums even further down – and made things particularly hard for private home buyers.