German housing deficit reaches 1.35 million units as construction drops to 206,600

Scale of the deficit

Germany faces a nationwide shortage of 1.35 million apartments, according to the "Bau-Monitor 2026" study published on 26 August 2026 by the Pestel Institute in Berlin. Housing completions dropped to 206,600 units in 2025, marking the lowest construction volume since 2012 and falling short of the estimated annual demand of 300,000 units. Between 2023 and 2025, annual completions fell by roughly 84,600 units across the country. Forecasts by the Ifo Institute project a further decline in 2026 to 185,000 completions. Although building permits rose 15.1% in the first half of 2026 to 126,300 units compared to the same period in 2025, industry representatives do not expect this increase to prevent lower completions.

Economic and fiscal fallout

The contraction in residential construction between 2023 and 2025 resulted in a net revenue loss of €26.9 billion for the building sector. Gross domestic product was 0.6 percentage points lower than it would have been under a baseline of 300,000 annual completions, contributing to an overall welfare loss of at least 1%. The shortfall reduced federal and state tax receipts by approximately €7 billion. Value-added tax revenues fell by €5.1 billion, while real estate transfer tax revenues dropped by €1.9 billion. Pestel Institute head Matthias Günther addressed the situation in Berlin.

As many apartments are needed as haven't been in a long time, and as few apartments are being built as haven't been in a long time. Both come together: that is toxic.

Regional shortages and labor constraints

The deficit is concentrated in economically active states and large urban areas. North Rhine-Westphalia records the largest single shortfall at 364,000 units, followed by Bavaria with 220,000 and Baden-Württemberg with 201,000. Across northern Germany, Lower Saxony lacks 123,000 homes, Schleswig-Holstein lacks 44,000, Hamburg lacks 23,000, and Mecklenburg-Western Pomerania lacks 13,000, while Berlin faces a deficit of at least 58,000 units. In Bavaria, state tax losses reached €1.3 billion in value-added tax, over €350 million in property transfer tax, and more than €600 million in income tax, while net cold rents rose by more than 70% between March 2015 and March 2026. The Pestel Institute noted that housing scarcity prevents workers from relocating for employment, leaving vacant jobs unfilled.

Policy demands and subsidy cuts

The Bundesverband Deutscher Baustoff-Fachhandel, which commissioned the study, criticized federal budget plans to reduce housing subsidies by €1.4 billion, leaving €2 billion allocated for 2027. Association president Katharina Metzger advocated for the adoption of simplified building standards known as Type E.

The slump in housing construction is fatal. In 2026 we expect another severe downward hit: only 185,000 new apartments, according to the forecast.

The trade association urged federal lawmakers to permit multi-family buildings with up to twelve units to proceed without individual building permits, provided they comply with local development plans. Matthias Günther called on the cabinet of Chancellor Friedrich Merz and Vice Chancellor Lars Klingbeil to treat residential construction as a central economic priority.