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Germany’s Housing Supply Increases Despite Coronavirus Crisis


March 2021

New-build housing construction stands a good chance to top the mark of 300,000 newly-built flats this year despite the coronavirus crisis – if it did, it would be the first time in more than twenty years. The background to this is that the construction backlog of residential units which, while approved, were not completed in 2020 is likely to exceed 750,000 now, according to KfW Research. Last year, the total number of newly-built flats narrowly missed the mark of 300,000 units. (source: www.handelsblatt.com) Nonetheless, there is no sign that the pent-up demand on the housing market is about to be met. The KfW experts are convinced that the demand for housing accommodation will still not be covered after the completion of the 300,000 new residential units. Rather, they believe the actual demand is 350,000 to 400,000 flats annually. “Especially in the growing metro regions, residential accommodation remains scare and expensive,” said Fritzi Köhler-Geib, the chief economist of KfW. In addition to the shortage in development land in the conurbation due to the progressive urbanisation dynamic, the shortage of skilled labour is hampering efforts to speed up housing construction. According to KfW Research, the best way to address excess demand would be, on the one hand, to create new housing where it is needed and, on the other hand, to redirect the urbanisation flows to the extent possible. The objective, the researchers added, is to create economic stimuli in the less densely populated regions, and to make them more attractive. One of the prerequisites for getting this done would be to improve public transportation and the digital infrastructure. The latter is made all the more relevant by the growing number of people working from home – not least because the trend is expected to continue beyond the end of the crisis, and to create corresponding shifts. If this came to pass, it would relieve the housing market in the sense that a growing trend to live somewhere other than the place of employment would probably ease the strain on the housing market in the conurbations.

Federal Government Missing Set Targets

Within the framework of its housing development drive, the Federal Government had announced in 2018 to seek the construction of 1.5 million flats by the end of the current parliamentary term. Notwithstanding the auspicious recent trend, it continues to lag behind its own target. While the Federal Government recently rated its own efforts as quite successful, market insiders consider the housing development drive a flop. A poll that the GdW Federal Association of German Housing and Real Estate Companies conducted among its 3,000 members revealed that a lot remains to be done in terms of housing construction in Germany. (source: www.handelsblatt.com) The respondents graded the federal housing development drive with a 4.4, which under the German grading scale is somewhere between “sufficient” and “flawed.” Although the Federal Government had created certain legal parameters, respondents stated that the target of 1.5 million flats by the end of the parliamentary term would be missed by around 300,000 residential units. They identified shortcomings on the state and municipal levels as the underlying cause in many cases, not least because the Federal Government is slow to provide assistance and incentives.

Drawing Inspiration from Other Countries

Michael Voigtländer, expert for real estate markets at the IW Economic Institute, found harsh words for the performance of the housing development drive: “It just failed to work out, and there are no two ways about it. The building activity has increased minimally at best.” In his opinion, the proper way to tackle the issue would have been to pursue a genuine promotion of urban development. “Perhaps it would have been a good idea to launch a special fund, the way other countries have done, to provide the means for creating the necessary infrastructure.” He is aware of no progress whatsoever in the planned reduction of construction costs. Neither does there appear to be a consistent political approach to the effort to lower the acquisition costs for owner-occupied homes. It may be true that new legislation limits the allocation of estate agent fees to the buyer to 50 percent of the fee total. But the government has not even touched upon the issue of the real estate transfer tax – even though it was written into the coalition agreement.

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