Germany's housing construction slump has cost the economy dearly, study finds

A deep downturn in residential construction has left a visible mark on Germany's economy, according to research published on Wednesday showing that roughly 84,600 fewer homes were completed in 2025 than two years earlier.

The report, known as the Construction Monitor 2026, estimates that the two-year building slump stripped around €26.9 billion ($31.4 billion) in revenue from the construction industry. It also calculates that gross domestic product ended up 0.6 percentage points lower than it otherwise would have been, while public coffers took in approximately €7 billion less in tax revenue.

The analysis was carried out by the Pestel Institute, an economic research group commissioned by the Federal Association of German Building Materials Retailers. To measure the damage, researchers compared actual output with a benchmark of "stable construction activity" — essentially what the sector would have delivered had it maintained its previous pace of around 300,000 homes per year. Official figures show just 206,600 dwellings were finished last year.

"Economic growth only works with more housing construction," said Matthias Günther, who heads the Pestel Institute.

Beyond the immediate hit to output, the institute warns that Germany faces a structural deficit of 1.35 million homes, a figure it had already computed earlier this year in a separate study for the Social Living Alliance. The researchers argue that scarcity is now acting as a drag on the labour market as well.

The gap is spread across the country but hits some regions especially hard. Berlin alone is short at least 58,000 dwellings and Hamburg 23,000, while North Rhine-Westphalia, the most populous state, is missing some 364,000. Bavaria's shortfall stands at 220,000 units and Baden-Württemberg's at 201,000.

According to the study, employers in thriving economic regions are struggling to fill job openings because workers cannot secure housing they can afford nearby. "People don't move to a new place of work if they can't find a home there that they also afford," Günther said, adding that the mismatch was suppressing growth and eroding prosperity.

There are tentative signs of a turnaround on the supply side. New building permits rose 15.1% in the first half of this year to 126,300 units, based on data from the Federal Statistical Office.

Industry representatives, however, remain downbeat about full-year output. "The collapse in residential construction is catastrophic," said Katharina Metzger, president of the building materials retailers' association, whose group expects only 185,000 newly built homes in 2026 — another steep decline.

Metzger sharply criticized plans in Berlin to trim housing construction subsidies by €1.4 billion, leaving just €2 billion earmarked for 2027. She argued this was precisely the wrong moment to withdraw support and urged instead for dependable, sustained funding.

She also pressed for quick implementation of the proposed simplified building standard, dubbed Type E, which would allow apartment blocks of up to 12 units to proceed without individual planning permission provided developers adhere to the applicable development plan.

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