€500 Billion Special Fund: Opportunities and Risks for the German Economy, Infrastructure, and Real Estate Market

A historic step for the German economy: On March 18 and 23, 2025, the Bundestag and Bundesrat passed a €500 billion special fund aimed at boosting the country's infrastructure. But what does this decision mean for various economic sectors, and especially for the real estate market?

German Infrastructure on the Rise

The special fund will primarily be invested in transport infrastructure, digital networks, the energy transition, and climate protection. Experts anticipate that spending on highways, bridges, and train stations will significantly improve both public and private infrastructure. In the area of climate protection, investments in renewable energy and the expansion of sustainable transportation systems could open up new economic opportunities. The digital infrastructure will also benefit from this funding, potentially strengthening Germany's global competitiveness in innovation and technological leadership. In the long term, the German Institute for Economic Research (DIW) and the Kiel Institute for the World Economy (IfW Kiel) expect these measures to significantly enhance the country’s competitiveness. According to DIW calculations, economic output could rise by around 1% as early as 2026, with an average growth rate of over 2% starting in 2027. The IfW forecasts economic growth of 1.5% in 2026 due to the additional spending.

Residential Real Estate as a Key Sector

The special fund could also have a substantial impact on the residential real estate market. Increased investment in infrastructure may lead to the creation of new development zones, especially in and around urban centers that become more accessible through improved transport links. This makes such regions more attractive to investors and construction companies. In high-growth areas benefiting from infrastructure projects, demand for residential property is expected to rise. Despite the positive outlook, challenges remain. Large-scale infrastructure investment could drive up production costs for construction companies, as demand for building materials, labor, and machinery increases. This may lead to higher prices for materials and wages, ultimately affecting new construction costs. In addition, increased pressure on the construction labor market could cause skilled labor shortages, resulting in project delays.

Effects on Interest Rates and Inflation

Financing the special fund through the issuance of federal bonds could increase demand for bonds and thus raise yields. This would push up capital market interest rates, raising borrowing costs for the government, businesses, and private borrowers. Real estate buyers and developers relying on external financing would be particularly affected—or already are—as the market has partially anticipated this development. Furthermore, expansive fiscal policy, combined with high national debt and related spending, could fuel inflation. This, in turn, would limit the European Central Bank’s (ECB) monetary policy flexibility and make further interest rate cuts more difficult. That poses a challenge for homebuyers and investors who rely on low interest rates.