New Construction Stagflation: Why New Apartments Will Be More Expensive in 2026 Despite the Crisis
Stagflation in construction: Less built, yet more expensive
Stagflation — the simultaneous occurrence of economic stagnation and price inflation — is known from the macroeconomics of the 1970s. In German housing construction, this very phenomenon is reality in 2026.
The Federal Statistical Office (Destatis) reported for February 2026 a new construction price increase of +3.3 percent compared to the same month of the previous year. At the same time, building permits are at a multi-year low, completions continue to decline, and the industry is struggling with structural cost problems that do not resolve quickly.
For buyers of new construction apartments, this means: They pay more in 2026 than in 2025 — although the market is shrinking. For existing property owners, this means: New construction as competition remains expensive, making existing apartments relatively more attractive.
Destatis figures: What +3.3 percent means in concrete terms
The Destatis construction price index measures the actual settlement prices for rough and finishing construction work. +3.3 percent YoY in an environment where the general inflation rate is below 3 percent means: Building is becoming more expensive at an above-average rate.
Concretely: A new-build apartment that cost 9,500 euros per square meter in Munich in 2024 now costs around 9,800 euros. In Frankfurt, the range is 8,200–8,800 euros, and in Berlin, it is 7,400–7,900 euros per square meter for fully finished new-build properties in good locations.
These prices are 40–60 percent above the existing property prices for comparable locations in many markets. The price gap between new construction and existing properties is driving demand in the existing market — and thus supporting prices there.
Material costs: The silent main driver
Behind the price increase is mainly the cost side. Important construction materials have stabilized at a higher level since 2020:
- Lumber: Still 35–45% above pre-crisis levels despite normalization after the peak in 2021
- Steel: Persistently high energy costs in steel production keep prices elevated
- Insulation / Mineral wool: Limited capacities, increased raw material prices
- Labor: Wage increases in the construction industry in 2024/2025 of 4.5–5.5 percent, further increases expected
In addition, the effort for energy efficiency requirements (GEG 2024) alone causes 300–500 euros per square meter additional costs compared to the standard before 2020.
Building Permits to Recover Only from 2027
Looking at the leading indicator of building permits shows that a quick trend reversal is not expected. For 2025, around 200,000 permits were issued — a slight recovery compared to 2024, but still far below the 2021 peak of over 360,000.
Construction industry associations and forecasting institutes assume that completion numbers will only start to rise again from 2027 — and then only moderately. The long pipeline from permit to construction start and finally to completion (18–36 months) prevents a rapid increase in supply.
For the housing shortage, this is a bleak message: Even optimistic scenarios foresee a noticeable improvement in supply in urban areas only from 2028.
Impacts on Project Developers and Institutional Investors
For project developers, stagflation has existential implications. Anyone who calculated a project in 2021 now faces:
- Construction costs 25–35% above the original estimate
- Financing costs doubled to tripled
- Selling prices that have not risen proportionally
This explains the wave of insolvencies among mid-sized project developers in 2023–2024 and the caution of institutional investors in new construction forward deals.
Conclusion: Existing properties benefit from new construction stagflation
The stagflation in new construction paradoxically supports existing property prices. If new construction is permanently 40–60 percent more expensive than comparable existing properties, demand shifts structurally to the existing market. This is the key mechanism in 2026 that supports
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