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

Germany's deep downturn in homebuilding has taken a measurable toll on the wider economy, stripping roughly 0.6 percentage points from gross domestic product, according to research published Wednesday. The Construction Monitor 2026, compiled by the Pestel Institute for the Federal Association of German Building Materials Retailers, estimates the country completed about 84,600 fewer dwellings in 2025 than it did two years prior.

The study calculates that the construction industry lost out on approximately €26.9 billion ($31.4 billion) in revenue across those two years. Beyond the direct hit to builders, the researchers estimate public coffers collected about €7 billion less in tax revenue than they otherwise would have.

The analysis uses a counterfactual benchmark: it compares actual activity against a scenario in which Germany maintained its historical pace of around 300,000 new homes per year. In reality, official statistics show just 206,600 units were finished in 2025.

"Economic growth only works with more housing construction," said Matthias Günther, who leads the Pestel Institute. The report also reiterates an earlier finding that Germany faces a national shortage of some 1.35 million homes, a gap that extends well beyond major cities: North Rhine-Westphalia alone lacks an estimated 364,000 dwellings, Bavaria 220,000 and Baden-Württemberg 201,000, while Berlin and Hamburg are short at least 58,000 and 23,000 respectively.

According to the researchers, the scarcity is increasingly acting as a drag on the labor market. In prosperous regions especially, employers 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 noted, adding that this dynamic suppresses growth and overall prosperity.

There are tentative signs of a turnaround: building permits rose 15.1% in the first half of the year to 126,300 units, per the Federal Statistical Office. Yet industry leaders remain downbeat. "The collapse in residential construction is catastrophic," said Katharina Metzger, president of the building materials retailers' association, forecasting another steep decline to only 185,000 newly built homes in 2026.

Metzger sharply criticized government plans to trim housing subsidies by €1.4 billion, which would leave just €2 billion available in 2027, arguing instead for dependable, sustained support. She also urged quick adoption of the proposed Type E simplified construction standard, under which apartment blocks of up to 12 units could go ahead without individual planning approval provided they conform to the local development plan.