BERLIN (dpa-AFX) - Germany's struggling construction industry is on the verge of a turnaround – and with it, the stalled residential construction sector, which has contributed to rising rents in cities. This is the finding of a new study by the German Institute for Economic Research (DIW), obtained by the German Press Agency.
According to the study, construction volume in Germany is expected to grow in real terms for the first time in five years in 2026 – by 1.7 percent. In 2027, it is projected to increase by 3.4 percent. The main driver is public construction, which is benefiting from billions in government spending on roads and bridges, while private construction of offices and factories remains weak amid the economic downturn.
Bright Spot for Tight Housing Markets
"The trough in the construction cycle appears to have been passed," writes study author Laura Pagenhardt. The recovery is being driven primarily by the stabilization of construction prices and interest rates, as well as investments from special funds for infrastructure and climate neutrality. DIW expects construction volume in public civil engineering to grow by almost a tenth this year.
Residential construction is also picking up again after years of crisis. DIW expects a 2.4 percent increase in 2026, followed by a strong 6.1 percent rise in construction volume in 2027. Construction volume includes both construction investments and repairs.
The construction sector slipped into crisis following sharp rises in interest rates and costs after the Ukraine war. Private builders could no longer afford their own homes, and investors put plans on hold. This increased pressure on housing markets, especially in cities, where rents rose by more than four percent at the end of 2025 – twice the rate of inflation. Increased building activity tends to make it easier for people to find apartments.
The crisis in the construction sector, which has suffered since the end of the real estate boom in 2022, is one reason for Germany's economic stagnation. A recovery in construction would therefore stimulate the economy. According to DIW, construction volume is expected to exceed 600 billion euros for the first time in 2027, accounting for nearly one-eighth of Germany's economic output.
Risk of Rising Prices
However, DIW sees a risk that billions in government subsidies could lead to "inappropriate price increases" in the construction sector. "If the many investments push highly specialized construction firms to the limits of their capacity, this could once again fuel price increases – and slow the momentum," says study co-author Martin Gornig. In order to ensure that public investments are not eroded by rising prices, the recently declining productivity in the construction industry must urgently be increased, for example through initiatives by policymakers and businesses. He advocates for a task force to coordinate public investments./als/DP/zb
