Regulations and requirements
How building became unaffordable
By Max Bourne
May 5, 2024, 12:27 p.m
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The need for new apartments is huge, but many can no longer afford the costs of new buildings and the corresponding rents. New residential construction in Germany is collapsing. A study breaks down why this is and what needs to change.
Housing construction is in an acute crisis. It is estimated that there is a shortage of up to 800,000 apartments in Germany, and the shortage will only get worse. Because the number of building permits and building applications has collapsed. This means that in the coming years, fewer apartments will be built instead of more, despite the great need. The main reason for this dramatic development: new living space is hardly affordable anymore. On average, it now costs more than 5,100 euros per square meter to build an apartment in a major German city, including additional costs, land costs and financing costs. This emerges from a study by the Working Group for Contemporary Building (ARGE).
According to the study, costs have continued to rise since 2000 – with the exception of a brief decline at the beginning of the Corona crisis. From 2020 onwards, this increase accelerated significantly. According to the ARGE figures, creating living space – including all preparatory, additional and financing costs as well as the property – became more expensive by 42 percent from the first quarter of 2020 to the fourth quarter of 2023 alone. The experts break down exactly how these cost increases are made up. This allows conclusions to be drawn about the causes and solutions for how housing construction could become affordable again.
As a result, the costs for the shell, for example, rose from an average of 527 euros per square meter to 1,049 euros at the beginning of 2020, an increase of almost 100 percent. According to ARGE, the drivers here were the material prices that skyrocketed during the Corona crisis and “market processes” that meant that the high demand exceeded the industry’s capacity. According to the ARGE study, rents below 17.5 euros per square meter can hardly be achieved with unsubsidized new buildings.
The costs for the expansion increased even more. The technical expansion – which primarily includes heating, ventilation, plumbing and electrical installations – has increased in price from 124 to 541 euros per square meter, i.e. more than quadrupled. According to ARGE, in this area, in addition to the price increases for wages and materials, new legal requirements, including the controversial Building Energy Act, are having an impact. The costs for the other expansion trades rose from 332 to 809 euros per square meter in the same period. In addition to legal requirements, such as thermal insulation or sound insulation, cost drivers here include increased demands on apartment furnishings and the increasingly important accessibility.
Affordable construction is possible
According to ARGE data, construction costs have increased by a total of 144 percent to almost two and a half times since 2000. According to the Federal Statistical Office, prices for building materials and services rose by 109 percent in the same period. Of the difference, 30 percentage points can be attributed to new requirements imposed by the Building Energy Act and its various predecessors and five percentage points to other increased requirements.
In order to help housing construction in Germany get back on its feet, some of these requirements would have to be reduced again, the study concluded. Possible examples include reduced requirements for sound and heat insulation, but also the waiver of comfort such as elevators in buildings with a few floors or a simpler design of balconies. The authors urgently warn against further tightening standards and rules for housing construction.
The good news: Affordable construction is definitely possible. The study doesn’t just calculate theoretical savings options. It also lists examples of projects in which it has already been possible to create living space for construction costs of less than 4,000, and in one case even less than 3,000 euros per square meter.