Construction and Residential Development

Affordable housing: Addressing construction expenses, worker scarcity, and regulations for successful implementation

, and Administrator

2025 September 12 . 11:37 AM

2 min read

Construction and Residential Development

In recent years, Germany has been grappling with a persistent housing shortage, a problem that is expected to persist and even worsen in the coming years. This is largely due to a decrease in construction activity.

The rising housing costs are particularly affecting single parents, large families, students, and people with a migration background. A doubling of new construction would be required to secure access to affordable housing for all, but several factors are hindering this.

Land availability and rising construction costs, interest rates, and uncertain investment conditions are major obstacles. Inflation, energy prices, and interest rates have driven up personnel, material, and financing costs, exacerbating capacity overload and skilled labor shortages. Regulatory requirements, energy measures, and standards also increase the cost of new housing and prolong planning and approval procedures.

The population in Germany has grown by approximately 2.8 million since 2011, leading to a tight housing situation in major cities like Berlin, Hamburg, and Munich. Population shifts directly affect housing demand and rental prices, with economically strong regions and major cities recording significant population increases.

Immigration exacerbates housing costs in growth regions, while vacancy increases in shrinking regions. On average, 25% of income is spent on housing, and even 45% for at-risk-of-poverty households. By January 2025, rents had increased by 8.7% compared to 2020, and housing ancillary costs have significantly increased as well.

Many political measures to promote affordable housing exist, but their suitability depends on the target group, market, and financing options. The stock of social housing is decreasing by about 40,000 units annually, leaving a gap in the provision of affordable housing.

Only 79% of the housing demand was covered nationwide between 2021 and 2023, with major cities falling significantly short. The projected annual housing demand for the years 2026 to 2030 remains above the current construction capacity at 302,000 units to be built.

The KAS Policy Atlas "Rent | Buy | Live" provides an overview of current political measures and assesses their effectiveness. Buildable land is scarce in urban centers, necessitating the reactivation of brownfield sites and building plots. High interest rates, government interventions, and economic uncertainty dampen private investments, increase the cost of new housing, and slow down the expansion of supply and affordability.

In conclusion, the housing crisis in Germany is a complex issue, affecting vulnerable groups disproportionately. Addressing this challenge requires a comprehensive approach that takes into account land availability, construction costs, financing, and population dynamics, among other factors.