The housing market is grappling with a shortage of affordable apartments, prompting concerns from major investors. Expired social housing agreements are exacerbating the issue, while government plans have failed to assist retirees in finding suitable housing. Rising construction costs and stringent regulations are hindering urban development. Despite a recent uptick in real estate prices, private investors remain cautious amid uncertainties. City centers struggle, with prime properties maintaining value, and the construction sector faces declining orders and economic pressures from large transactions.
The Current Landscape of the Housing Market
The housing market is currently facing significant challenges, particularly in the realm of affordable housing. Even major investors are voicing concerns, as navigating the real estate landscape becomes increasingly complex.
Surveys conducted among 150 funds, banks, and real estate firms highlight a consensus: the German housing market is struggling with a scarcity of affordable apartments. Paul von Drygalski from EY noted, “This indicates that the housing market is not functioning optimally right now.” Florian Schwalm, a partner at the consulting firm, emphasizes the urgent need for large-scale affordable housing solutions.
Challenges and Opportunities in Real Estate Development
Historically, subsidized social housing was prevalent in the 1970s, but many of those agreements are now expiring, allowing owners to rent at market rates. This shift is contributing to the current tension in the market for inexpensive apartments.
The government has faced criticism for its unsuccessful real estate plans, which have made it tougher for retirees to find suitable housing. Additionally, the obligation to renovate older buildings for energy efficiency adds another layer of complexity to new construction efforts, according to Schwalm, who points out that these costs are diverting funds away from new projects.
Von Drygalski attributes the lack of urban development and the slow pace of building expansions to high costs and stringent regulations. The Federal Statistical Office reports a notable 3.1 percent rise in construction costs over the past year, further straining the market.
With real estate prices rising again after a historic decline, private investors are particularly cautious due to uncertainties surrounding government support for housing initiatives. Schwalm stresses that “private individuals need security,” as the timeline from planning to completion can be lengthy.
In Germany, 58 percent of households reside in rental properties, with a small percentage of tenants also owning additional real estate. The statistics reveal a higher prevalence of homeowners in rural areas compared to urban centers, particularly in East Germany, where ownership rates remain low due to historical factors.
As the market continues to evolve, city centers are particularly struggling, with only properties in prime locations showing promise for value retention. The demand for quality office spaces is increasing, but challenges remain in attracting employees back to physical workplaces. Meanwhile, retail spaces are increasingly dominated by grocery stores, as traditional shopping centers continue to decline.
The real estate sector is under pressure, with many construction companies reporting a lack of orders. The EY study indicates that the market is still recovering from a significant drop in high-value sales, with only 35 billion euros recorded last year compared to 114 billion euros in 2021.
Additionally, large transactions are facing economic pressures, exemplified by the sale of the Berlin department store KaDeWe by the bankrupt Signa Group, and Vonovia’s divestiture of properties to alleviate its financial burdens.