Construction Failure: Collapse of the New Structure in Munich
In the heart of Germany, Munich is grappling with a significant housing shortage, as the first half of 2025 presents extremely weak construction permit numbers. The city, renowned as the most expensive real estate metropolis in the country, is experiencing a catastrophic decline in housing construction numbers, especially given its strong immigration, extremely high rental prices, and already tense market conditions.
The IVD Real Estate Association, a leading industry body, has expressed concern about the current housing construction situation in Munich. According to their analysis, the cause for the low construction permit numbers is a combination of factors, including increased construction costs, high interest rates, high building requirements, and insufficient funding opportunities.
The city has experienced a period of fluctuations in construction permit numbers from 2022 to 2024. While the year 2023 was somewhat better compared to the weak years of 2022 and 2024, the average number of new apartments approved for construction per month in the first half of 2025 is a mere 280. This represents more than a halving compared to the previous year's level (-53%).
The significant decrease in the number of construction permits in Munich is largely driven by a combination of economic, market, and regulatory factors affecting the construction sector. The housing market contraction and social housing demand pressures, economic downturn and construction sector contraction, rising input costs and inflation, and a complex regulatory environment are all contributing factors.
The housing market contraction and social housing demand pressures are reflected in a report from Stuttgart, a comparable German city context, which revealed a continued decline in building permits with only 961 apartments approved in 2024, down from 1,092 the year before. This coincided with historically high demand for social housing, long waiting times, and insufficient stock maintenance efforts amid rising numbers of households seeking subsidized rental housing.
The economic downturn and construction sector contraction are evident in Germany’s construction sector, including housing, experiencing a downturn with the Purchasing Managers’ Index (PMI) for construction falling below 50 since early 2023, indicating contraction. In 2025, although the decline eased slightly, housing activity continued to contract sharply and new orders remained in decline amid economic uncertainty and rising input costs.
Rising input costs and inflation have put pressure on budgets and financing, delaying or reducing new construction projects and, consequently, permits. Inflation in material costs reached the highest levels in over two years, increasing overall construction expenses.
The regulatory and policy environment also plays a role in the permit dynamics. New more stringent federal guidance on construction qualification and efforts to streamline large infrastructure permitting could create transitional uncertainties or delays in permits for certain construction types.
In summary, Munich’s significant permit decline in 2022 and 2024 is primarily due to worsening economic conditions for construction, high inflation of input costs, an acute shortage and demand mismatch in affordable/social housing driving complicated market conditions, and evolving regulatory frameworks creating uncertainty or delays. This multi-factor scenario aligns with national trends in Germany’s construction sector contraction and housing challenges.
The IVD Real Estate Association is voicing concerns about the low construction permit numbers in Munich, attributing the issue to increased construction costs, high interest rates, stringent building requirements, and insufficient funding opportunities in the finance sector, which are contributing to the decline in investing in real-estate development. The significant decrease in construction permits is not only affecting the housing market but also mirrors the broader challenges in the German construction sector, including the economic downturn, rising input costs, and a complex regulatory environment.
