The availability of German real estate has fallen, illustrated by a 5.3% year-on-year decline in 2017 residential permits. Since then, there has been little to no movement, with the German Federal Statistical Office reporting a 0.5% increase in residential permits through January and November 2018 from the previous year. 

This is a symptom of persistent construction bottlenecks due to workforce shortages, insufficient contractor capacity and inefficient bureaucracy. 

In Munich residential vacancy rate is near zero. Frankfurt was 40,000 homes short in 2015, suggesting that 2017’s 15% year-on-year increase in apartment prices was not just Brexit related. In Berlin, the price of terraced houses rose 14% year-on-year through 2018. 

The seven German real estate hubs of Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart are all demonstrating low vacancy rates, and purchasing prices are expected to grow. 

Meanwhile, demand is set to come under pressure from lifestyle changes, urbanisation, macroeconomic factors and political policy. This will increase house prices and lower vacancy rates even further. 

How have demographic changes increased housing demand? 

The process of singularisation is when the proportion of residents living alone grows. It is particularly pronounced in Germany, which retains an average household size of 2.0 people. This is below the European average of 2.3, with only 22.3% of German households containing children. 

The result is greater demand in individual housing units, which is putting pressure on an already underperforming supply side. 

Over the long term, demand may suffer from an ageing population. Germany’s low rate of 1.5 births per woman make its population one of the oldest in Europe.