Germany's Housing Slump Has Cost the Economy Dearly, Study Finds

Germany's deep downturn in homebuilding has exacted a measurable toll on Europe's largest economy, stripping 0.6 percentage points from gross domestic product as residential construction collapsed between 2023 and 2025.

The findings come from the Construction Monitor 2026, a study released on Wednesday by the economic research group Pestel Institute on behalf of the Federal Association of German Building Materials Retailers. According to the analysis, around 84,600 fewer homes were completed in 2025 than in the year 2023.

That shortfall translated into a net revenue hit of roughly €26.9 billion ($31.4 billion) for the construction sector over the two-year period, the study calculated. The wider economy felt the effects too: GDP was 0.6 percentage points lower than it otherwise would have been, and public coffers took in about €7 billion less in tax revenue.

To arrive at those figures, researchers measured actual activity against a benchmark of what they call stable construction levels — essentially asking how the economy would have performed had roughly 300,000 homes been built in 2025, in line with volumes seen in earlier years. Official statistics show just 206,600 dwellings were actually completed last year, according to the Federal Statistical Office.

"Economic growth only works with more housing construction," said Matthias Günther, who heads the Pestel Institute.

The monitor also updated its estimate of Germany's overall housing gap, putting it at 1.35 million missing homes nationwide — a figure the institute first computed at the start of the year for the Social Living Alliance. Beyond the macroeconomic numbers, the researchers warned that the scarcity is starting to act as a drag on the labor market itself.

Where affordable homes are in short supply, companies struggle to fill open positions, particularly in regions with strong economies, the study found. The regional breakdown is stark: Berlin alone lacks at least 58,000 homes and Hamburg around 23,000, while North Rhine-Westphalia, the most populous state, is short an estimated 364,000 units. Bavaria's gap stands at 220,000 and Baden-Württemberg's at 201,000.

"People don't move to a new place of work if they can't find a home there that they can also afford," Günther said. He added that the mobility squeeze was weighing on economic growth and eroding prosperity.

There are tentative signs of a turn: building permits have recently been climbing, with the Federal Statistical Office reporting a 15.1% rise to 126,300 units in the first half of this year. Yet industry leaders remain downbeat about the full year ahead. "The collapse in residential construction is catastrophic," said Katharina Metzger, president of the building materials retailers' association. Her association forecasts another steep decline in 2026, when it expects only 185,000 newly built homes.

Metzger sharply criticized the federal government's plan to trim housing construction subsidies by €1.4 billion, noting that only €2 billion in support is currently slated for 2027. Rather than cutting back, she argued, the sector needs dependable, sustained funding.

She also urged swift adoption of a simplified building standard known as Type E. Under the proposal, apartment blocks of up to 12 units could be constructed without separate planning permission, provided developers adhere to the applicable development plan. --- END ---