Study: Housing Construction Crisis Costs State Billions and Slows Economic Growth

The missing investments also dragged down overall economic performance, according to the institute. The Pestel Institute assumes that this caused gross domestic product to be 0.6 percentage points lower. This means that residential construction, which in earlier years was a pillar of the economy, has now taken on the role of a drag on growth.

Regional Differences

The study's authors see the causes primarily in sharply rising construction costs, high interest rates, and a hesitant permit policy on the part of the municipalities. Many private builders and project developers have stopped new construction projects or postponed them indefinitely. Public housing companies are also able to continue their programs only to a limited extent.

The study draws on data from the Federal Statistical Office and its own model calculations. According to these, significantly fewer apartments were completed in recent years than were politically announced. This gap, the institute says, acts like a permanent shortfall in demand – with corresponding consequences for the skilled trades, the building materials industry, and tax revenue.

The effects vary regionally. In metropolitan areas and high-growth states such as Bavaria and Baden-Württemberg, tax shortfalls are particularly large due to high land prices. In structurally weaker regions such as parts of Rhineland-Palatinate, on the other hand, it is mainly the loss of jobs in the construction sector that takes a toll.

The institute also warns of long-term consequences for the labor market. If fewer apartments are built, capacity utilization at craft businesses, planning offices, and suppliers to the building materials industry declines. Employment in these sectors has already fallen, and further declines are foreseeable if politicians do not act to counter the trend.

Demands on Policymakers

The study therefore recommends a package of measures: faster building permits, cheaper public funding conditions, fewer bureaucratic hurdles, and greater use of serial and modular construction methods. A reduction in real estate transfer tax for owner-occupied residential property is also mentioned as an option.

Experts see the results as confirmation of earlier warnings. In recent years, economic researchers and construction industry associations had already pointed out that the housing construction crisis is burdening not only the supply of affordable housing but also the economy as a whole. The new study now makes the concrete fiscal dimensions visible for the first time.

Katharina Metzger, co-author of the analysis, emphasizes that the billions in question represent not only lost revenue but also foregone investments in infrastructure, schools, and climate protection. "Every apartment that is not built is a missed opportunity for growth and for tackling the great challenges of the future," she said.

Outlook

Matthias Günther, director of the Pestel Institute, sees the federal government as having a duty. The existing programs are not sufficient to bring about a turnaround in the housing market. What is needed is a binding investment path with clear annual new construction targets and reliable financing over several years.

Should the federal government not course-correct soon, a further intensification threatens, according to the institute's assessment. Rising rents, a growing gap in affordable housing, and a persistent weakness in the construction sector could reinforce one another – with negative consequences for growth, employment, and public budgets.

According to the Pestel Institute, the results of the study are to be discussed shortly with representatives from the federal government, states, and municipalities, as well as with industry associations. The aim is to agree on concrete steps for reviving residential construction.