Although the population in Germany is declining in the long term, the number of households is growing: Colliers expects over one million additional households by 2040, around 850,000 of them in the 50 largest cities alone. On the other hand, there was a 14 percent year-on-year slump in new residential construction in 2024. By 2027, residential construction could decline by a further 35 percent.
The main causes of the structural problems of the housing market are the enormous increase in construction and financing costs in recent years. For example, the construction costs for apartments more than doubled between 2010 and the end of 2024, from 2,200 euros to around 4,500 euros per square metre. Including the cost of land, the total costs in residential construction are currently 5,200 euros per square metre nationwide, and in some cities significantly higher in the range of 5,500 to 6,000 euros per square metre. The increase in the past five years is striking: Since 2020, the total costs of residential construction have increased by almost ten percent every year. This is the result of the current article by Colliers in the ifo Schnelldienst 10/2025. Under the title “Between demand boom and construction cost increase”, the article shows the structural challenges on the housing market resulting from increasing demand and a lack of supply. The article attempts to show solutions to make housing construction economically viable again and at the same time to significantly reduce rents.
Construction costs as a core problem of housing construction
Construction costs have become the central obstacle to residential construction, which have a direct impact on rents and make new construction more difficult overall. In addition, in addition to worse financing conditions, there is above all the regulation that is burdening residential construction. In addition to around 2,300 DIN standards, there are now around 20,000 regulations when legal, technical and municipal regulations are included. This development is making a significant contribution to the cost increase in residential construction.
In this environment, privately financed new buildings are hardly feasible at affordable rents. “With an expected return of 5 percent, net rents of up to 25 euros per square metre are necessary in the cities in order to realise housing construction from an economic point of view. A reduction in construction costs by 20 to 30 percent would significantly reduce rents, in the cities to a level in the range of 17 to 21 euros. With a slightly lower return expectation of 4.5 percent, new rents from 15 euros would be possible. This makes it clear that affordable new housing construction remains unrealistic without noticeable cost reductions,” says Francesca Boucard, Head of Market Intelligence & Foresight at Colliers in Germany.
Solutions to reduce construction costs
There are numerous starting points for reducing construction costs: Modular and serial construction, for example, Savings of up to 20 percent as well as a reduction in construction time, which also reduces costs. Timber and hybrid construction methods in prefabricated construction can be realized from as little as around 2,500 euros per square meter. Further potential lies in the reduction of regulations as well as in the area of planning and the construction processes themselves. In addition, municipal housing companies could contribute to stabilising the housing market by injecting surpluses into housing construction.
“An underestimated factor in the rental housing market are municipal and state-owned housing companies, which own significant shares of the housing stock in many cities, for example in Berlin, Frankfurt and Hamburg in the range of 20 percent and more. In these three cities alone, municipal housing companies achieved a surplus of over 600 million euros in 2024. These funds could be used specifically to reduce rents or to build new buildings. Calculated on the housing stock of the companies, rent reductions of up to 1.40 euros per square metre per month would be possible here. If municipal land were to be developed, the construction of around 2,000 new apartments per year would be possible. It is crucial that the surpluses are used strategically to secure and create affordable housing,” says Felix von Saucken, CEO Colliers Germany.
The article was published in ifo Schnelldienst 10/2025 and is available for download under this link .
