Ifo: In the year 2026, only 175,000 new dwellings
**The Ampel Coalition fails to meet their promise of building 400,000 new housing units annually. According to economic researchers, as of 2026, only 175,000 new housing units are expected to be built each year, which is over 40% less than the nearly 300,000 housing units built in 2022. "The forecast is subject to uncertainties, but it's quite clear that we'll slip below the 200,000er-mark at the latest by 2026", explained Ifo real estate expert Ludwig Dorffmeister.
The goal of 400,000 new housing units per year, which was set by the Berlin Coalition upon taking office in 2021, is clearly receding. Ifo expert Dorffmeister does not expect significant improvement in the next two years for the construction and housing industry. "Overall, I have little hope for a major turnaround", he said.
Building is expected to get even more expensive
The problem is not limited to Germany. According to the Munich Institute for Economic Research (Ifo), the number of new housing units built in the 15 western European countries is expected to decrease from over 1.5 million per year to 1.2 million.
"Just like in other European countries, the housing construction sector is currently experiencing the negative consequences of high inflation and interest rate hikes", said Dorffmeister. "In Germany, construction costs have completely gotten out of control and are preventing the market from recovering. Long-term, interest rates should not serve as an excuse for weak construction activity, as they are now back on a normal level."
According to Dorffmeister's assessment, construction costs are expected to rise further in the coming years: "The construction cost index of the Federal Statistical Office shows that formerly rising material costs are not decreasing but rather stabilizing, while labor costs are decreasing significantly." The collective bargaining agreement for the construction industry is expected to lead to additional cost increases in the coming years.
Building applications are collapsing - a never-ending tragedy
A significant factor in the forecast is the decline in building applications and housing permits. In May, according to Federal Statistical Office data, only 17,800 building applications were approved, which is almost 44% less than in May 2022. Many housing cooperatives and municipal companies have put new projects on hold due to soaring building costs.
One of the main reasons for this is that companies outside of urban areas must demand very high rents far above the usual level in order for the buildings to be paid off within the usual timeframe of 25 to 30 years.
The Housing Industry Association (GdW) recently lamented a "never-ending tragedy" in housing construction. "From a political standpoint, not enough is happening to counteract this", said GdW President Axel Gedaschko. The missing building permits of today are the "non-occurring building completions of the future". The association represents the interests of housing cooperatives and municipal companies, which usually rent out their housing units more affordably than private corporations. According to a recent GdW survey of these member companies, two-thirds cannot build new housing units this year.
For renters, an unfortunate situation
The housing shortage and increasing construction costs are causing an unfortunate situation for renters. The lack of affordable housing is a major concern for many people, and the situation is expected to worsen in the coming years. The housing industry is facing numerous challenges, and it remains to be seen how policymakers will address these issues and ensure that everyone has access to affordable housing.
The expected development of rents is not part of the Ifo-Forecast, but the numbers do not paint a cheerful picture for apartment seekers. In large cities like Munich, the peculiar phenomenon has been observed for a long time that house prices are falling, but rents continue to rise due to housing shortages.
The employer-affiliated Economic Research Institute IW in Cologne also sees a much higher demand for apartments than is foreseen to be built. The Institute estimates the annual new construction demand at 372,000 apartments until 2025, and for the following years until 2030 at 302,000 per year. Anyone who intends to or has to move to urban regions in the coming years as a tenant should prepare for a strenuous search and high costs.
- Ifo real estate expert Ludwig Dorffmeister mentioned that construction costs in Germany have significantly increased, which is hampering the recovery of the housing market.
- The Housing Industry Association (GdW) expressed concern about the rising construction costs, stating that two-thirds of their member companies cannot build new housing units this year due to financial constraints.
- According to the employer-affiliated Economic Research Institute IW, the annual demand for apartments in Germany is much higher than the projected construction numbers, which could lead to a challenging housing market for renters in the coming years.
