That is why residential construction is paralyzed

Anyone who, in the face of rising rents, thinks that apartments have to be built as if there is no tomorrow, is wrong. The reasons for this are diverse. It’s especially bad in some big cities.

Less in demand: residential construction project in Berlin-Schöneberg

Dhe German real estate market is booming. There is a lot of construction going on and project development is also growing again, after it slackened somewhat in 2017. In all seven German so-called A cities (Berlin, Düsseldorf, Frankfurt / Main, Hamburg, Cologne, Munich and Stuttgart), 28.4 million square meters of space are currently being developed.

But if you think, in view of rising rents, that apartments now have to be built as if there was no tomorrow, you are mistaken. The volume of project space for new apartments has again decreased by 1.6 percent, reports the analysis company for the real estate industry, Bulwiengesa.

“More and more housing developers are throwing away”

The decline is not as strong as in the previous academic year, but the direction remains the same. In Berlin in particular, where a citizens’ initiative is currently trying to expropriate housing associations, the project volume is declining. After years of significant growth, the space has decreased by 4.6 percent in the past two years. There are also declines in Munich, Düsseldorf and Stuttgart, in Hamburg, Frankfurt and Cologne, on the other hand, the space increased by 5 to 6 percent. The areas in planning have also decreased by more than 60 percent.

Andreas Schulten, General Manager of Bulwiengesa, sees this as a reaction to housing policy. “More and more housing developers are giving up and prefer to develop offices.” But the social center of Germany is getting fewer and fewer new apartments. Only the rich and poor benefited from the new residential construction, for the majority in between the necessary concepts were increasingly lacking.

The volume of projects for the own portfolio has a somewhat dampening effect. This has increased, but is less than half the size of project developments for sale. Despite the greater activity of municipal housing companies, it is clear that they cannot build the apartments they need on their own, says Schulten. Quite a few projects are passed on from the developers to housing associations.

The fact that project developers prefer offices is due, on the one hand, to the low vacancy rates in the large office markets. On the other hand, the segment benefits from special conditions such as VAT exemption and, compared to residential construction, less structural regulation.

Office projects are currently also being started on a speculative basis. After years of decline in space, the project space has grown for the third time in a row, this time by a whopping 23 percent, particularly strong in Berlin with 32 percent.

The decline in residential construction is also due to the market. From the end customer’s point of view, the prices “scratched the limit”, especially those of condominiums. In combination with high property prices, higher construction and planning costs and ever longer planning periods, the limits of profitability are quickly reached. On the other hand, there is no lack of demand. Because of the high land prices, some project developers have long since switched to smaller markets.

With 60 percent, residential construction is the largest segment among project developments, offices make up 25 percent.