Housing shortage slows economic recovery: How a shortfall of 1.4 million homes is holding back the economy
The housing shortage is no longer a marginal social issue, but a key driver of growth in the German economy. If families, skilled workers and start-up founders cannot find suitable accommodation, the momentum in the labour market slows, consumption slumps and investment is put on hold. Estimates of a shortfall of around 1.4 million homes are therefore more than just statistics – they are a wake-up call for politicians, local authorities, investors and property owners.
Why a shortage of housing is affecting the economy
The housing shortage has an impact on several levels. Companies are increasingly reporting that job applicants are turning down offers because they cannot find an affordable flat within their commuting radius. High rents are eroding purchasing power: Those who spend 40 per cent of their net income on housing spend less in shops, restaurants and on services. At the same time, commuting distances are increasing, which takes its toll on productivity and health. The property market has thus gone from being the „backbone“ to the „bottleneck“ of the region.
- Mobility among skilled workers is falling: Qualified candidates will not accept jobs if relocation costs and rent are unaffordable.
- Consumption is slowing: Higher housing costs mean less spending in local small and medium-sized businesses.
- Investment is shifting: Project developers are adopting a wait-and-see approach due to construction costs, interest rates and marketing risks – there is a lack of new projects.
- Competition between locations is suffering: Regions with a shortage of expensive housing are losing out to cities with active new-build and rezoning programmes.
Figures with leverage – a brief reality check
The shortfall of 1.4 million homes roughly corresponds to the housing needs of 2.8 million people (assuming two people per household). At the same time, the number of homes currently being completed is well below the target set by policymakers. The result is that rents continue to rise and existing housing stock is being utilised more intensively, but without any structural gains.
Calculation example (simplified assumptions):
If 300,000 workers have to commute each year due to a housing shortage and lose an average of 45 minutes per day as a result, this amounts to around 45 million hours of lost productive time – based on 200 working days. Based on a conservative estimate of €35 in value added per hour, this amounts to a potential loss of €1.6 billion in value added per year. This is only one of the effects – the loss of skilled workers, reduced consumer spending and project delays are not included in this calculation.
A combination of factors: costs, interest rates, regulation – an unfortunate coincidence
Construction costs have risen significantly in recent years as a result of increases in material and labour costs. With the turnaround in interest rates, financing has become more expensive – which is undermining the viability of many projects. At the same time, regulations, approval times and capacity bottlenecks in planning authorities are delaying completion. Taken together, this creates an „investment gap“: demand is high, but the expected return no longer covers the risks.
Added to this are regional differences: in growing metropolitan areas, building land remains in short supply, whilst in outlying areas, although land is available, there are risks relating to demand and infrastructure. Without pragmatic, data-driven prioritisation, bottlenecks will persist in the very places where the jobs are.
What will help now: measures for local authorities, investors and property owners
There is no quick fix – but there are levers that can make a difference. The key is to harness existing potential, manage risks wisely and rethink financing.
- Activate stock: Extensions and changes of use (e.g. from office space to residential accommodation) can be completed within 12–24 months, often with a lower carbon footprint than new-build projects.
- Speeding up the approval process: Early consultation with planning authorities, well-drawn-up development plans and type approvals save months.
- Managing costs: Examine alternatives (serial construction, timber-hybrid, optimised floor plans). A cost comparison per m² of net floor area versus gross floor area helps prevent miscalculations.
- Utilise funding: Combine low-interest loans and grants (e.g. KfW for climate-friendly new builds or ESG-compliant refurbishments) with private financing.
- Risk sharing: Joint ventures with local housing associations or co-investors reduce the capital outlay and marketing risk.
- Rental Property Fund/Forward Funding: Institutional capital can pre-finance projects provided that the planning and letting strategy are sound.
- Neighbourhood development: Mixed-use development (residential, commercial and retail) increases acceptance and ensures the long-term stability of cash flows.
Typical errors & solutions
Error: Focusing solely on the purchase price rather than the total cost of ownership (TCO). Solution: Include operating costs, CO₂ costs and the subsidy bonus in the calculation.
Error: Authorities and utility providers were involved too late. Solution: Preliminary enquiry and milestone plan, including media events, in the project calendar.
Error: No exit scenario. Solution: Draw up contracts for alternative options (partial sale, furnished accommodation, subsidised housing).
Opportunities despite scarcity: existing properties and ESG as value drivers
The most immediate opportunities for improvement lie within the existing property portfolio. Energy-efficiency refurbishments reduce service charges and improve lettability. An older block of flats with 1,000 m² of living space that reduces its energy costs by 2 €/m² per annum saves €24,000 a year – part of this saving can be capitalised on through tenants’ willingness to pay higher rents and lower vacancy rates. This creates a performance buffer for investors, which partially offsets interest and construction costs.
At the same time, infill development (e.g. adding storeys to existing buildings) creates added value without taking up any land. In areas with a tight rental market, this allows for the creation of additional residential units that improve the micro-location quality – from bakeries to nurseries. Local authorities benefit from higher tax revenues and more stable population figures, whilst businesses benefit from the availability of staff accommodation.
Conclusion: From a bottleneck to a competitive advantage
The housing shortage is a drag on the economy – but it also presents an investment opportunity for well-structured projects. Those who plan with foresight, carry out thorough cost calculations and work in partnership with local authorities can create affordable housing whilst achieving sustainable returns. Speed, quality and an integrated approach to financing, construction and operation are crucial.
A quick check before setting off: Have you analysed the site’s potential? Assessed the planning permission risks? Checked eligibility for funding? Tested the costs per m² and rental income in the „Interest +1 %“ scenario? If the answer is „yes“ to all four of these, your project is resilient enough to turn the market bottleneck into an advantage.
Ready to unlock your potential? We identify development opportunities within our portfolio and support new-build projects from the initial concept through to marketing – in a well-informed, discreet and goal-oriented manner. Arrange an initial consultation now and have project opportunities assessed in detail.
