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German cities struggle to curb housing shortage

August 1st 2019

By DW

For years Germany's real estate market has been plagued by a housing shortage, particularly in big cities. A new study says that is unlikely to change anytime soon. Prices will remain high, but there is a silver lining.

Finding affordable housing has grown increasingly difficult for people in Germany. The market is empty, particularly in big cities. That, in turn, means prices are on the rise. Indeed, housing space is a rare commodity in the country.

The German Economic Institute (IW) in Cologne has presented concrete figures to underline the housing shortage. Over the past three years, about 283,000 new apartments were built nationwide, according to a recent IW study. However, this only covers 80% of the demand. If the gap between supply and demand is to be closed, about 340,000 new apartments would have to be built this year and in 2020. Now it's up to the municipalities, Ralf Henger, co-author of the study. They must try to make building easier, he said.

Large cities in particular lag behind when it comes to construction, according to the study. In Cologne and Stuttgart, for instance, only about half of the apartments the IW estimates are needed to meet demand were built. Munich, Frankfurt and Berlin also build fewer apartments than needed, even if the discrepancy there is smaller. The same is true for many more cities: The number of apartments built is insufficient. "Not only is there a shortage of apartments at present, but there is also a need for a further increase in construction activity in the longer term," Henger and his co-author, Michael Voigtländer, wrote.

Lack of personnel

There are various reasons for the shortages, said Tobias Just, managing and scientific director of the International Real Estate Business School at the University of Regensburg. "The most important factor is access to building land," he told. "To a certain extent, there is simply a lack of building opportunities; in addition, the approval process in a number of cities is still too slow." The authors of the IW study came to the same conclusion, saying the cities can't keep up with demand.

In addition, citizens have been protesting against new construction projects in areas where construction is feasible. "They rightly say that this would affect their quality of life," Henger said, adding that this means even when buildings are going up, this does not happen as speedily as possible.

That's not all, according to Just: "Construction costs have risen in recent years." That, he said, has led to construction being carried out for one type of building in particular — the relatively expensive kind.

Tight urban market

The market in large cities and university towns is particularly tight. High influx, insufficient personnel in building offices, strict regulations and a shortage of skilled workers in the construction industry are additional obstacles to growth. The IW study's authors warn that Germany's cities will have to make an effort to slow down rising rental prices.

The most important thing is to expand access to building land, Just said. "This also means that we have to think in terms of larger cities — we can't assume that we will be able to add 300,000 housing units to the existing structures every year." Instead, cities will have to grow more on their fringes. Peripheral locations would have to be made more attractive, for instance by relocating state authorities to smaller cities and expanding public transport.