Housing Sector Faces Sharp Decline in New Construction Investments Amid Rising Costs

The German housing sector is bracing for a significant downturn in new construction investments due to escalating building costs, according to the German Federal Association of Housing and Real Estate Companies (GdW). The association, which represents approximately 3,000 housing companies and cooperatives across Germany, reports a substantial shift in focus from new developments to the management and improvement of existing housing stock.

Data from the GdW suggests that while nearly half of its members' investments were allocated to new construction projects in 2021, this proportion is expected to drop to just 32 percent in the current year. The trend is projected to continue, with investment in new builds forecast to fall by more than a quarter to only six billion euros by 2026. In contrast, investments in the existing portfolio are likely to remain steady at 12.7 billion euros, reflecting a strategic pivot within the sector.

This shift has been further underscored by recent performance figures. In the previous year, new construction activity experienced a decrease of 1.9 percent, while investments in existing buildings increased by 5.8 percent. The association attributes this change primarily to persistently high construction costs, which have made new projects less economically viable for many housing providers.

Call for Regulatory Reforms and Cost Reductions

The GdW is urging policymakers to introduce measures aimed at lowering construction costs in order to revitalize the market for new housing developments. The association highlights the proposed 'Building Type E' as a critical lever for simplifying construction processes and reducing expenses. This model, which would set a mandatory minimum standard for residential buildings, proposes to cut costs by making concessions on features such as underground parking, basements, elevators, and the thickness of windows and walls.

According to the GdW, implementing such minimum standards could potentially reduce construction costs by up to a third. This, in turn, would enable the development of between 260,000 and 300,000 new residential units annually. However, these figures still fall short of the estimated nationwide demand, which the association places at around 320,000 new units per year. In 2025, just over 206,000 units were completed, and projections for 2026 suggest that the total may decline further to approximately 200,000 units.

Legislative Action Still Pending

Although the federal government outlined key points for the Building Type E initiative in late 2025, including proposals to relax certain construction requirements, a formal legislative draft has yet to be approved by the cabinet. The delay in enacting these reforms is contributing to ongoing uncertainty in the sector, particularly for providers of affordable housing.

GdW-affiliated companies, known for offering comparatively low-cost rental units, anticipate a 33 percent decline in the number of completed dwellings this year, following a 20 percent drop in 2025. These companies collectively manage around six million apartments, accounting for approximately 30 percent of all rental units in Germany.

Further Demands for Speed and Stability

In addition to advocating for lower construction costs, the GdW is calling for expedited permit procedures and more reliable government support programs. The association has expressed concern over potential reductions in housing benefit payments planned by the current governing coalition, warning that such cuts could lead to an increase in tenant debt. Despite the completion of 27,300 new social housing units nationwide, the overall stock of social housing fell to 1.026 million units in 2025.

The GdW argues that simply increasing funding is insufficient if rising construction costs and complex regulatory requirements continue to diminish the effectiveness of subsidies and support schemes. The association maintains that a coordinated approach, combining regulatory streamlining with stable and predictable funding, is essential to address the structural challenges facing the German housing market.

• Investments in new housing construction are projected to decrease significantly by 2026.
• Building Type E could provide cost reductions and enable more new developments if implemented.
• Sector representatives are pressing for swifter approval processes and reliable funding mechanisms.
• Affordable and social housing providers anticipate notable declines in housing completions.