Real Estate and Society

Housing Shortage in Germany, with Demand for Accommodation Rising Fastest in Berlin

04.

August 2016

Notwithstanding Germany's steady increase in demand, housing construction continues to lag hopelessly behind. This is the upshot of the latest report on immigration, housing demand and construction demand (“Zuwanderung, Wohnungsnachfrage und Baubedarfe”) published by the IW German Economic Institute in Cologne. The report examined the need for residential accommodation in German cities against the background of the swelling stream of incoming refugee migration. The housing supply is shortest in the country's major metropolises, and nowhere more so than in Berlin. In no other German city is the residential market quite as strained. According to the IW research institute, more than 31,000 flats would have to be completed annually between now and 2020 in order to accommodate the extra inflow of refugees. While the anyway wide gap between construction demand and building activity is sure to keep widening, the completions rate is less than one third of the residential units actually needed. The most recent figure puts the annual completions total at just 9,000 flats.

Housing Bottlenecks in all Major German Cities

Berlin may have the most conspicuous housing shortage, but it is certainly not the only German metropolis lacking homes. The calculations done by IW research institute suggest that Munich, for instance, needs 15,000 new flats, while Hamburg requires nearly as many and Cologne 8,000 new flats. Nationwide, roughly 380,000 flats would have to be raised annually through 2020 to meet the demand identified by IW. At the same time, the experts concluded that the big cities account for more than half of the housing demand. The trend is essentially driven by the strong incoming migration to Germany. Although the bulk of the refugees living in Germany are staying in temporary accommodation, a large number of them will need a proper home sooner or later, depending on their resident status. This creates an extra demand of 67,000 to 158,000 additional housing units per year, according to the IW's figures.

Even if we were to assume that immigration will be abruptly checked in 2017, around 31,000 new flats would have to be raised in German cities nonetheless. After all, the conurbations have lost none of their appeal for the German population.

Housing Shortage Driving up Rents

With supply drying up and demand on the rise at the same time, rent rates in Germany's first city are soaring. Berliners actually have to dig deeper into their pockets to make their monthly rent payments than the residents of cities like Cologne, Stuttgart or Düsseldorf. The IW institute found that the ratio of rent to purchasing power is considerably higher in Berlin than elsewhere. This is explained by the extraordinarily brisk pace at which rents in Berlin have gone up lately. The IW concludes that the low level of interest rates makes homeownership far more affordable than renting, and that this trend will accelerate as long as the building activity fails to gather momentum.

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