Europe Faces Housing Crisis with Sharp Decline in New Construction
Europe is grappling with a severe shortage of new housing, with projections indicating that the number of units built will hit its lowest level since 2015. According to a forecast by the Munich-based ifo Institute, only 1.5 million new homes are expected to be constructed this year, a 5.5% drop compared to 2022.
Persistent Challenges in Germany
Germany, in particular, is experiencing significant obstacles to housing development. While the country aims to build 205,000 new units in 2025, a stark contrast to the 250,000 completed last year, ongoing supply chain disruptions and soaring construction costs are stifling progress.
ifo researcher Ludwig Dorffmeister highlights the urgency of addressing these challenges: "In Germany, high construction costs are currently the primary barrier to market recovery." The institute predicts a potential 15% decline in new construction in 2024 if these issues remain unresolved.
Contrasting Trends in Northern Europe
In contrast to Germany, Northern Europe is showing positive signs of recovery in its housing markets. Dorffmeister notes, "In the Nordic countries, markets are rebounding strongly after the previous downturn." Sweden, in particular, is already witnessing an uptick in construction activity this year.
Denmark, Finland, and Norway are also anticipated to experience growth in construction in 2026. However, Austria, France, and Italy are projected to see a decline in new home construction during that year.
Slight Recovery Expected in 2026
Overall, the ifo Institute forecasts a moderate 3% increase in new construction across Europe next year. Dorffmeister emphasizes the importance of addressing supply-side bottlenecks and implementing policies that encourage investment in affordable housing.
About the ifo Institute
The Munich-based ifo Institute, founded in 1949, specializes in economic policy analysis. It receives a substantial portion of its funding from public sources, while the remainder comes from private entities and consulting contracts.
Renowned for its monthly business climate index, the institute is a registered association led by renowned economist Clemens Fuest since 2016. The institute’s research and policy recommendations play a pivotal role in shaping economic decision-making in Germany and beyond.
