Contributing around 15 per cent of national valued added, construction and real estate activities were until recently a thriving economic counterweight, but these too are now starting to flail.New construction starts slumped by half in the first six months of 2023, and building permits for new dwellings fell by more than one-quarter. A toxic mixture of higher financing expenses, building-cost inflation, weak demand and policy uncertainty has resulted in projects being delayed or cancelled.
Most Germans didn’t therefore benefit from the property boom. While residential prices have fallen 6.4 per cent from the peak in June 2022 , transaction volumes have plunged. The upshot is even more people turning to the rental market where costs are rising.Tenants who signed leases years ago are still doing OK; their low rents may not have increased much, and they have no incentive to move.
The far right Alternative for Germany party – who around one-fifth of Germans say they would vote for if there were an election now – hopes to make political capital from the issue. They blame Germany’s welcome of migrants – almost 1 million Ukrainian war refugees arrived last year – for exacerbating a shortage of homes.
While I’m sympathetic to renters’ plight – landlords often ignore the existing rules – further interventions risk discouraging housing investment.