The low point: 2025 and 2012 in direct comparison

The figure of 206,600 only becomes tangible in historical context. For comparison: in 2020 — the most recent peak — 306,376 dwellings were still completed in Germany. In just five years, construction output has thus collapsed by around 100,000 units per year. In 2012, at the low point after the financial crisis, there were 200,500 dwellings — the current figure has returned to that level.

Building permit statistics show even more clearly what lies ahead in the coming years: only 215,300 dwellings were approved in 2024 — a decline of 16.8 percent. Since an average of 26 to 27 months pass between approval and completion (2020: still 20 months), completions in 2026 and 2027 are already foreseeably low. The construction backlog — dwellings already approved but not yet built — amounts to 759,700 units, of which only 330,000 are actually under construction.

The 400,000 target: promised, never achieved

The traffic-light coalition had set the target of 400,000 new dwellings per year, including 100,000 social housing units, in its 2021 coalition agreement. Chancellor Scholz stuck to the target even under growing pressure. The result: the target was not even approximately achieved in a single year.

In 2024, completions reached 63 percent of the target — in 2025 just 52 percent. Construction Minister Klara Geywitz became the face of the construction crisis, and as early as 2023 Tagesspiegel called the 400,000 promise a “castle in the air”. Historically, an average of 405,000 dwellings per year have been built in the Federal Republic since 1950 — the current level is thus far below the long-term average.

Why is new construction collapsing? The five main causes

The interest rate turnaround

The ECB raised its key interest rate from 0 percent (2021) to over 4 percent (2023). Mortgage rates jumped from around 1 percent to 4 to 5 percent. For project developers with variable-rate debt capital and thin margins, this meant the end of many calculations.

Exploding construction costs

The energy crisis, inflation and supply bottlenecks since 2021 drove up material and labour costs sharply. Concrete, steel, timber — all significantly more expensive than at the offer-planning stage. Many projects approved in 2020 were no longer economically viable in 2023.

Wave of insolvencies

Real estate insolvencies rose by 70 percent in 2024. In the first quarter of 2024 alone, 630 real estate and construction companies went bankrupt — an increase of 18.6 percent compared to the same quarter of the previous year. The consequence: 320,000 jobs were at risk or disappeared.

Bureaucracy and approval procedures

Changing energy standards (Efficiency House 55 standard), the lack of a federal building code and cumbersome approval procedures structurally slow down construction projects. The average time from approval to completion has increased from 20 to 27 months since 2020.

Collapse in demand for owner-occupied flats

The interest rate turnaround reduced purchasing power. Project developers were left sitting on completed dwellings that couldn’t be sold — and cancelled their next projects.

Regional extremes: Berlin, Cologne, Munich

The IW Köln institute estimates an annual housing need of 372,600 units nationwide — only 206,600 were actually built in 2025. The annual gap thus stands at over 165,000 dwellings.

Regionally, extreme imbalances are evident:

Berlin: largest supply gap nationwide

Need according to IW Köln: 31,300 dwellings per year. Building permits in 2024: only 9,772 — that’s 31 percent of demand. No other urban district has a bigger absolute gap.

Cologne and Munich

Cologne has the worst coverage ratio among the metropolises: only 37 percent of demand is met. Munich fares best at 93 percent, yet thousands of units are still missing. Hamburg is the only positive exception, with +39 percent completions in 2024.

Eastern Germany: decline twice as severe

The decline hits the East with –34.3 percent (2025), more than twice as severe as Western Germany (–16.7 percent).

What the construction crisis means for rents and purchase prices

The housing gap has long since arrived in the market. Listed heritage properties in particular are gaining attractiveness in this environment. The Pestel Institute puts Germany’s housing shortage at 1.4 million units — a record level. By 2030, 2.4 million new dwellings will be needed.

Rents are reacting accordingly: nationwide, asking rents for new lettings rose by 7 percent in 2024, in Berlin by 10 percent — a total of 22.2 percent between 2022 and 2024. Munich stands at €20.50 cold rent per square metre (+4.4 percent). The DIW Berlin institute notes that the real estate market remains tight — rents and housing prices continue to rise.

For investors, this means: rental yields in German metropolitan areas are rising structurally — not because purchase prices are falling, but because supply is not catching up in the foreseeable future. Anyone investing now in existing properties or new builds in growth regions benefits from a market where the supply problem will not be solved before 2027 at the earliest. Anyone planning a purchase now should factor in the structural supply deficit as a long-term tailwind.

Video: housing market in turmoil

Outlook: when will the market turn around?

The signals are mixed. The Central Association of the German Construction Industry (ZDB) expects 215,000 to 220,000 completions in 2026 — hardly better than 2025. Positive completion figures are not expected before 2027 at the earliest.

A silver lining: building permits rose again in 2025 for the first time, by 10.6 percent to 238,100 — in September even by 59.8 percent compared to the same month of the previous year. Since permits precede completions by two to three years, this points to a moderate recovery from 2027 onwards.

Structurally, the problem remains: the IW Köln institute forecasts increasing market tension in major cities, even though nationwide demand is calculated to decline slightly from 2026. In metropolises such as Berlin, Munich and Hamburg, the gap persists — and is growing.

In five years, Germany has wiped out all the construction progress made since the financial crisis. The 400,000-dwelling gap will not be closed by political promises, but only once interest rates, construction costs and approval processes structurally return to a level that lets project developers make their calculations work. Exactly when that will happen remains open.

Explainer video: 3 advantages in 4 minutes

Tip! Don’t miss anything, subscribe now on YouTube: Lukinski!

Advantage 1: protection against inflation

Inflation can quickly devalue your savings. For example, if you have €100,000 and inflation is at 5%, you lose 5% of your money every year. After two years, your €100,000 is worth only €90,500. Real estate offers effective protection against inflation, because rents usually rise with inflation. If inflation is at 5%, your rental income also rises by 5%. This means you benefit from rising rental income in the long term, and your investment is protected against the effects of inflation.

• Assets: €100,000
• Inflation 5%, purchasing power after 1 year: €95,000
• Inflation 5%, purchasing power after 2 years: €90,500
• …

Bonus tip! The effect of inflation on loans and repayment

Suppose you’ve taken out a loan of €100,000. In times of inflation, your money gradually loses value. This means your money’s purchasing power decreases while prices for goods and services rise.

Here’s the interesting part: while prices rise and incomes increase, your loan’s monthly repayment rate stays unchanged. This means that over time you keep repaying the same fixed instalment, which decreases in real purchasing power.

This has two important effects:

Your debt gets “devalued”

Inflation causes your debt to decrease in real terms. This means the originally borrowed loan amount of €100,000 is worth less in real purchasing power over time. In other words, you effectively repay less once you factor in inflation.

Rising income can make repayment easier

If your income rises over time due to inflation, it becomes easier to manage your monthly repayment instalment. This means you may have more financial leeway to make other investments or reach your financial goals faster.

Advantage 2: your tenant pays off your investment

One of the best features of real estate investments is that your tenants pay off your investment. The bank grants you a mortgage loan that you don’t have to earn yourself. Your tenant pays the monthly rent, which covers part of the financing. Once the financing is paid off, the property belongs to you entirely. On top of that, you benefit from the appreciation of the land. Even if land prices rise by only 5% per year, these gains add up over the years to a substantial sum of additional wealth.

• You only need 20% equity
• The bank provides the rest (debt capital)
• Who pays your loan? Your tenants!

Remember this sentence forever:

Your tenant pays off your investment!

Advantage 3: passive income

As soon as your monthly rental income covers your monthly costs, you generate passive income. This means you earn extra money every month without having to work actively. This passive income can help you achieve financial independence and give you the freedom to enjoy more of your life. For example, if you have monthly costs of €1,000 and monthly rental income of €1,100, you generate a monthly passive income of €100.

• “Costs” of your property p.a. = €12,000
• Net cold rent p.a. = €13,200
• Surplus = €1,200

Why does a property make sense as a capital investment?

Hopefully you no longer ask yourself this question after these 3 key advantages!

Real estate investments offer effective protection against inflation, the opportunity to build wealth while your tenant pays off the investment, and the chance of passive income. If you enjoyed this video, don’t forget to like it and subscribe to my new channel. Stay tuned for more insightful content on real estate investing. Thank you for watching!

Tip: Capital investment guide