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Due to its sheer size with around 40.3 million residential units and its share of roughly 47% of total fixed assets, Germany’s housing market is of special significance (source: GENESIS Online, as of 31/12/2016).

Compared to other European countries, Germany has the lowest homeownership rate among the member states of the European Union (EU-28). Only about 52% of all Germans live in homes they own outright. This compares to a European average of about 69%. The national homeownership rate is almost 65% in France and an actual 78% in Spain (source: Eurostat, as of 2016).

Recent surveys and forecasts indicate that housing is in particularly short supply in German metro regions, and that this shortage will persist for years to come. The underlying causes are heterogeneous and attributable to the rise in incoming migration into these areas (immigration from other countries and domestic migration), the increase in the average residential floor area per person, and the trend toward single-person households.

Find out more about the latest trends and market research findings concerning the development of the German real estate market right here.

Increasing Housing Shortage in Germany, with New Schemes in Particularly Short Supply

Shortfall in Dwellings Coincides with Rising Demand

In the years following Germany’s reunification in 1990, the number of residential completions took a nosedive and did not rebound until 2008. But in 2017, the number of planning permits started to decline again by around 7%. The number of newly built residences, especially in Germany’s metro regions, has for many years been too low to make up for existing shortages. In 2016, only about 3.4 flats for every 1,000 residents were completed in Germany.

Fuelling the Housing Shortage

In addition to the far too low number of residential planning permits and completions in general, i.e. even when including building works in existing buildings that deliver new flats, the volume of pure construction activities to create new residential accommodation in new buildings is too low. In 2016, the number of planning permits for flats in newly constructed residential buildings totalled around 316,500 flats. The number of completed flats in this sense added up to around 240,000. This means that only 2.9 flats for every 1,000 residents were completed in newly constructed residential buildings. To meet demand, roughly 5 residential units for every 1,000 residents would have to be completed. It is therefore reasonable to assume that the housing shortage will persist for years to come, especially in metro regions and cities.

Service Charges Outpace Rents

In recent years, the rent rates in German cities and conurbations have been subject to fast and steady growth. The consumer price index suggests that rents have gone up by nearly 34% since 1995. Aside from the net rents, the price growth also affected service charges during this time period. Especially the all-in service charges, heating included, experienced a surge. As a result, they are nearly twice as high as they were in 1995. German industry insiders often refer to them as “second rent” that keep driving up the costs of housing.

Rising Number of Households and Growing Residential Footprint per Person

Aside from the steady increase in residents, Germany's urban housing markets have been subject to three mega trends since the 1990s:

1. The floor space consumption per person has gone up from 36 sqm to 46 sqm over the past 20 years.

2. The number of people living in households of one or two persons only is rising. One in three German households consists of a single person today. In metropolises like Hamburg or Frankfurt am Main, the ratio is 50%.

3. Urban life has regained its appeal, and people are leaving the countryside.

The German Housing Shortage will Intensify

Germany's largest growth markets will develop a shortage of nearly one million flats over the next 15 years, or so a survey commissioned by Allianz Baufinanzierung suggests. The survey assumes that Germany will grow at an immigration pace comparable to the rate in Switzerland.

The housing shortages are most conspicuous in the regions of Munich, Berlin, Rhine-Main, Stuttgart, Hamburg, Cologne, the upper Rhine valley in southern Germany (Freiburg/Offenburg), Hanover and Düsseldorf. Among the key drivers of this trend are immigration from other EU member states and from other foreign countries (about 27%), and domestic migration to economically strong regions (about 73%). Even if the stepped-up building activity is maintained, the strain on the German housing markets will not ease before 2045.