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

Germany's prolonged downturn in residential construction has taken a measurable toll on the wider economy, wiping out tens of thousands of homes and billions of euros in revenue over the past two years, according to research published Wednesday.

The Construction Monitor 2026 study estimates that roughly 84,600 fewer apartments and houses were completed in 2025 than in 2023, as the country's building sector continued its steep decline. That gap translated into a net loss of about €26.9 billion ($31.4 billion) in revenue for the construction industry across the two-year period.

The macroeconomic consequences were substantial. The researchers calculated that gross domestic product ended up 0.6 percentage points lower than it otherwise would have been, while public coffers missed out on approximately €7 billion in tax receipts.

The report was compiled by the Pestel Institute, an economics research group commissioned by the Federal Association of German Building Materials Retailers. To quantify the damage, the institute measured actual output against a baseline of "stable construction activity" — in other words, what the market would have delivered had completions remained near the roughly 300,000 units a year recorded in earlier years. Official data from the Federal Statistical Office show just 206,600 homes were finished last year.

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

Beyond the immediate economic drag, the study highlights a deep structural shortage: Germany currently lacks around 1.35 million dwellings, a figure the institute first tallied earlier this year in research conducted for the Social Living Alliance. The researchers warn that the scarcity is now acting as a brake on the labor market, since employers in thriving regions struggle to attract workers when affordable places to live are unavailable.

"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, adding that the mismatch was suppressing growth and eroding prosperity.

The deficit is spread unevenly across the country but touches nearly every major economic hub. Berlin alone is short at least 58,000 homes and Hamburg 23,000, while North Rhine-Westphalia, the most populous state, faces a gap of 364,000 units. Bavaria's shortfall stands at 220,000 and Baden-Württemberg's at 201,000, according to the study.

There are early signs of stabilization. Building permits have recently trended upward, rising 15.1% in the first half of this year to 126,300 units, per Federal Statistical Office figures. Still, industry leaders see little cause for celebration in the near term.

Katharina Metzger, president of the building materials retailers' association, described the situation in blunt terms. "The collapse in residential construction is catastrophic," she said, forecasting another sharp drop in 2026 to only 185,000 newly built homes.

Metzger sharply criticized plans by the federal government to trim housing construction subsidies by €1.4 billion, leaving just €2 billion allocated for 2027 — a cut she called ill-timed. Rather than retrenching, she argued, policymakers should commit to dependable, sustained funding for homebuilding.

She also urged swift adoption of the government's announced streamlined construction standard, known as Type E, which would allow apartment blocks of up to 12 units to proceed without individual planning permission provided developers adhere to the applicable development plan.

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