New housing prices in Germany hit a new high, insufficient construction volume or continued to push up housing prices

The Zhitong Finance App learned that in May, the price of newly built homes in Germany hit a record high due to a surge in demand due to a shortage of housing, which highlights the urgency of the government led by German Chancellor Mertz in fulfilling promises to increase housing construction. According to data released by the real estate finance platform Europace, compared with the previous year, the purchase cost of newly built houses and apartments increased by about 2% last month. Prices for existing properties have also risen to their highest level since October 2022.

Sebastian Hein, head of real estate company Value AG, said in a statement on Tuesday: “Structural shortages in the market have ensured strong demand, which is evident in almost every sector. The current amount of construction is still too low.”

The gap between the prices of new and used homes continues to widen, reflecting a sharp rise in financing costs and material costs in the construction sector. Overall, the German construction industry has been unable to keep up with the growth in demand for many years, and previous government housing construction goals have often been unattainable.

Germany's new ruling coalition, formed by the CDU and the Social Democratic Party, promised to promote construction by reducing red tape and simplifying building codes. German Housing Minister Verena Hubertz plans to put forward a proposal to promote construction before the parliamentarians' summer recess.

However, it will take some time for these measures to really work. Europace CEO Stefan Münter said that while lowering interest rates is a good thing, this is unlikely to reduce borrowing costs in the construction sector due to the backlog in housing demand.