Germany’s construction sector is experiencing a systemic downturn. Despite modest GDP growth in 2025 (+0.4%), the industry remains under pressure: investments have been declining since 2022, and the housing sector has become the most problematic segment.
Main Challenges of the Industry
- The number of building permits fell by 43% between 2021 and 2024.
- Housing completions dropped to 251,000 units, while at least 320,000 are needed annually.
- The cost of construction services has increased by 35% since 2020.
- Loan interest rates remain at 3.5–4%, whereas before 2021 they could be below 1%. Many projects have become unprofitable.
- Due to a shortage of skilled workers, the average construction time has increased from 20 to 26 months. This has led to growing interest in hiring foreign workers in Germany.
- The backlog of unrealized projects has reached 760,000 units, and thousands of permits are simply expiring.
Market and Demand
Demand for housing remains consistently high, especially in major cities. Rents have risen by almost 50% over the past 10 years, and in Berlin more than doubled. Affordable housing is rapidly becoming scarce.
Germany’s Position in Europe
The decline in housing completions is noticeable across Europe, but Germany is among the worst performers with a decrease of –30%. For comparison, the UK and France expect recovery as early as 2026.
Political Measures: Attempt at a Restart
The government is launching reforms to accelerate construction in Germany starting in 2026:
- “Construction turbo mode”: permits issued within a maximum of 2 months.
- Focus on serial and modular construction.
- New Hamburg Standard and Building Type E to reduce costs to €2,000/m².
- Funding: €11 billion for social and climate-neutral housing.
However, key issues remain: land prices, workforce shortages, complex regulations, and slow administrative processes.
Trends in Germany’s Construction Sector
- Increasing housing shortage in urban areas.
- Standardization and modular technologies as potential cost-reduction drivers.
- Growing demand for foreign specialists.
- Gradual digitalization and faster permitting processes.
- A possible turnaround — not before 2026.
As we can see, Germany’s construction industry is at a turning point. To overcome stagnation, it needs a combination of political reforms, new technologies, affordable financing and systematic elimination of workforce shortages. Only then can the market stabilize and regain its role as an economic growth driver.
Source: assetphysics.com
