German construction prices jump 5% in May, fastest since 2023, as Iran war drives material costs higher
The price of new conventional residential buildings climbed 5% year-on-year in May, accelerating from 3.3% in February and reaching the steepest increase since summer 2023. The Federal Statistical Office cited military escalation in the Middle East as a fresh cost driver on top of earlier Ukraine-related pressures.
German construction inflation has gathered pace, with new-build residential costs rising 5% in May compared with a year earlier, the Federal Statistical Office reported on 10 July 2026. The acceleration from February's 3.3% annual rate pushed the index to its highest level since the 6.3% recorded in summer 2023. Over the three months from February to May alone, building prices advanced 2.4%, including value-added tax on construction services.
- Price increase reaches 6.3%, the highest in the series until the current acceleration.
- Annual inflation eases to 3.3%, the lowest point before the renewed upturn.
- Prices climb to 5% year-on-year, the fastest rate since summer 2023.
What is driving costs higher
Higher prices were recorded in every category of work. Shell construction costs rose almost 5% year-on-year. Concrete work was up 3.6%, masonry work 3.8%, and earthworks 5.4%. Among the sharpest increases were roofing (7.3%) and carpentry and timber construction (also 7.3%). Interior fit-out works averaged 5.1% more expensive, with heating systems and central water-heating installations, including heat pumps, climbing 5%. Metal construction work grew 4.4%.
The Statistical Office pointed to the Iran war as a key factor that followed the price surge triggered by Russia's invasion of Ukraine. Military escalation in the Middle East has made materials such as bitumen, steel and insulation more expensive and pushed up energy costs. Construction firms are passing the higher input costs on to clients.
- Shell construction
- 4.9 %
- Concrete work
- 3.6 %
- Masonry
- 3.8 %
- Roofing and woodwork
- 7.3 %
- Interior fit-out
- 5.1 %
- Heating systems
- 5 %
- Road construction
- 6.2 %
Impact on housing and rents
High building costs are seen as a primary reason for sluggish new construction and Germany's housing shortage. The GdW housing association warned that investments in new builds could collapse this year, with only 200,000 dwellings expected to be completed nationwide, against an annual need of roughly 320,000 units. Maintenance work on residential buildings also became markedly more expensive, rising 5.6% year-on-year in May. Meanwhile, new office building costs rose 5.2%, commercial buildings 5%, and road construction 6.2%.
The cost pressure is feeding into rental markets, particularly in cities, where rents are already under strain.
Minister's response
Federal Building Minister Verena Hubertz (SPD) has put forward a package of measures aimed at bringing down construction costs. Her approach relies on greater digitalisation, faster administrative processes and simplified subsidy programmes. She also confirmed that the legislative draft for the so-called Building Type E is complete; the proposal seeks to lower residential construction costs by permitting simpler and cheaper building standards.
