Germany's housing slump has cost its economy billions, new study finds

Germany's deep downturn in residential construction has inflicted measurable damage on the wider economy, according to research published Wednesday. The Construction Monitor 2026, compiled by the Pestel Institute for the Federal Association of German Building Materials Retailers, estimates that around 84,600 fewer homes were completed in 2025 than in 2023.

The study calculates the knock-on effects using a counterfactual scenario of "stable construction activity" — roughly 300,000 annual completions, in line with previous years. Against that benchmark, official data showing just 206,600 homes finished last year translates into an estimated €26.9 billion ($31.4 billion) in lost revenue for the building sector over two years.

The macroeconomic toll is substantial: gross domestic product was 0.6 percentage points lower than it otherwise would have been, and public coffers missed out on roughly €7 billion in tax revenue. "Economic growth only works with more housing construction," said Matthias Günther, who heads the Pestel Institute.

The report also underscores the scale of the country's housing gap, putting the national shortfall at 1.35 million homes — a figure the institute first tallied earlier this year. Researchers warn the shortage is now acting as a drag on the labour market, particularly in prosperous regions where employers struggle to fill vacancies because workers cannot find housing they can afford. Regional gaps are stark: at least 58,000 missing homes in Berlin and 23,000 in Hamburg, with the largest deficits in North Rhine-Westphalia (364,000), Bavaria (220,000) and Baden-Württemberg (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, arguing that the mismatch is suppressing growth and eroding prosperity.

There are tentative signs of a turnaround on the supply side. New building permits rose 15.1% year-on-year in the first half of the year to 126,300 units, according to the Federal Statistical Office. Yet industry sentiment remains bleak. "The collapse in residential construction is catastrophic," said Katharina Metzger, president of the building materials retailers' association, whose group forecasts only 185,000 new-build completions in 2026.

Metzger sharply criticized government plans to trim housing subsidies by €1.4 billion, which would leave just €2 billion in funding for 2027 — precisely the wrong moment, she argued, calling instead for dependable, sustained support. She also urged swift adoption of the announced streamlined building standard known as Type E, under which apartment blocks of up to 12 units could proceed without individual planning permission provided they conform to the local development plan.