Germany faces a historic shift in single-family home construction
Analysts at Deutsche Bank predict that more single-family homes will soon be demolished than newly built in Germany. This trend significantly impacts real estate prices and rent levels while also signalling the end of a particular era in German residential construction.
The construction of new single-family homes in Germany has been systematically declining for years. According to Deutsche Bank Research analyses published by businessinsider.de, this trend will continue shortly. High interest rates, rising construction costs, lack of available plots, and ecological considerations are the main factors hindering single-family housing development.
Jochen Möbert, an analyst at Deutsche Bank Research, points to the long-term downward trend in constructing single-family homes. In the 1970s, around 250,000 such homes were being built annually. That number fell below 150,000 even before the reunification of Germany. However, reunification brought a short-term increase; since then, the number of newly built single-family homes has never exceeded 110,000 annually.
The latest data show the scale of the problem. From January to May 2024, permits were granted for the construction of 15,500 single-family homes in Germany. For comparison, the total number of homes in Germany stands at 16.3 million and is almost not growing due to low investor activity.
Real estate too costly to build
What are the reasons for this downturn? Building plots in large cities and metropolitan areas is becoming increasingly expensive and more complicated to obtain. As a result, smaller apartments in multi-family buildings that use limited urban space more efficiently are preferred.
Ecological aspects also play a significant role in this trend. Single-family homes have a worse energy and environmental balance compared to multi-family buildings. According to a climate model for residential buildings developed by Deutsche Bank, apartments in large multi-family buildings use an average of about 36 gigajoules of energy annually, emitting around two tonnes of CO2. For comparison, single-family homes show 2.5 times higher values.
The number of new constructions will decline even further
If the current trend continues, the annual number of newly built single-family homes could drop, as Deutsche Bank predicts, to between 20,000 and 40,000. In the longer term, this could lead to a situation where the number of demolished single-family homes exceeds that of newly built ones.
Despite the decline in new investments, there is interest in single-family homes. Because of this imbalance between supply and demand, real estate prices of this type are likely to rise faster than apartments.
