As early as 2021, Deutsche Bank predicted that the boom cycle in the German real estate market would come to an end in the near future. The expiry date they gave: 2024. Half a pandemic and an energy crisis later, their analysis seems all but certain.
With Germany on the verge of sliding from a technical recession into a very real one in the fourth quarter, it seems only logical that the housing market will follow suit.
The biggest bust is currently unfolding in the construction sector. The Ifo Institute for Economic Research recently reported that the number of construction project cancellations hit a new high in October, with 22 percent of companies saying they had to scrap projects.
“It keeps on getting worse, and more and more projects are failing due to increased interest rates and rising construction costs,” says Klaus Wohlrabe, head of Ifo’s survey department.
In response to skyrocketing inflation in the eurozone, the European Central Bank (ECB) raising its key interest rate from zero to 4.5 percent over the course of just a year.
These additional costs are weighing heavily on the sector, as many previously lucrative construction projects have become unprofitable. And with the German government falling far short of its goal of building 400,000 new homes in both 2022 and 2023, it’s renters who will feel the brunt of the crisis.
No time to rent, and none to buy
It’s easy to imagine what happens when cities like Berlin fail to provide enough new flats while the demand for affordable housing skyrockets. More than 99 percent of the city’s housing is already occupied, according to Wirtschaftswoche, leaving little room for manoeuvre.
In its market report, the German Association of Investment Real