Affordable living: opportunities in Germany’s metropolitan regions

Germany is facing a housing supply shortage in its major cities, and recent government initiatives mean that now is a pivotal time to invest in affordable urban housing.

Demand for homes in metropolitan areas has long outpaced supply, leading to a shortfall of new housing. The previous government’s target of 400,000 new units per year was not met, with only about 250,000 completions in 2024 [1] (see figure 1). 

This imbalance has caused rents to soar by up to 50% in the largest cities since 2015 (see figure 2), underscoring the urgent need for more affordable housing options. In response, the current German coalition government has unveiled a Bau-Turbo (construction booster) plan, aimed at slashing red tape and accelerating construction approvals. This draft law empowers local authorities to temporarily bypass certain building regulations, potentially cutting planning times from five years to just two months in some cases, while also reducing development costs. This is a dramatic effort to create housing where it’s needed fast and at a lower price point for residents. 

At the same time, record public funding and subsidies are being deployed to stimulate affordable housing development. The aim is to offset, or at least stop, the significant decline in social housing stock that Germany has seen over the last 25 years (see figure 3). The federal budget for affordable housing is rising to €7.4 billion for 2025 (up from €6.7 billion in 2024)[2], with a record total of €23.5 billion earmarked between 2025 and 2029[2]. Additional support includes an extra €11 billion from a new infrastructure fund for housing[2], plus expanded subsidy programmes. This includes the Klimafreundlicher Neubau scheme, which provides low-interest loans and grants for climate-friendly new builds [2].

In short, political will and financial support have aligned, creating a highly supportive environment for investment in affordable living projects across Germany’s metropolitan regions. Below, we outline the top-four reasons why institutional investors should capitalise on this current momentum in the country’s major urban markets.

Top-four reasons to invest in German metropolitan residential real estate

1. Urban population growth and demand pressure

Germany’s metropolitan areas are experiencing sustained population growth. This is driven by their status as key employment hubs that attract domestic migrants and international talent, including expats, skilled workers, and students. This urban influx is intensifying demand for housing, particularly in the affordable- and mid-market rental segments. For instance, Berlin hosts over 200,000 university students, many of whom remain post-graduation to begin their careers. This puts further strain on the rental market. Although Germany’s population reached a record 84 million in 2022 – up 1.3%, largely due to immigration – this growth is concentrated in metropolitan regions. The resulting structural and persistent demand for metropolitan housing underpins long-term investment potential, with properties in these cities and regions likely to benefit from high occupancy and stable rental income.

2. Severe housing undersupply in cities

Germany’s urban housing market faces a severe and persistent undersupply, creating conditions for steady rental growth and capital appreciation. New construction has consistently fallen short of demand because of restrictive zoning laws, limited land availability, and slow approval processes. While the government aimed to build 400,000 homes annually, only around 250,000 were delivered in 2024, far below the estimated 320,000-plus units needed each year up to 2030. This shortfall has led to extremely low vacancy rates – often under 1% – in prime cities, where any new supply is quickly absorbed. As a result, rents in Germany’s 14 largest cities have surged nearly 50% since 2015. For investors, this imbalance offers a compelling opportunity: properties in undersupplied urban areas can command steady rent increases that are in line with, or slightly ahead of, inflation, while enjoying minimal vacancy rates. Affordable housing, in particular, stands out as a high-demand segment, with limited competition from luxury developments and potential support from government incentives. This enhances its long-term investment appeal.

3. Superior infrastructure and urban amenities

Germany’s metropolitan regions are attractive to residents because of their infrastructure, which supports strong and sustained housing demand. Cities like Berlin, Munich, Hamburg, and Frankfurt offer extensive public transport systems, including U-Bahn, S-Bahn, buses, and regional trains. This makes commuting efficient and car-free living viable. These urban centres also feature top healthcare facilities, leading universities, international schools, and digital infrastructure – all of which contribute to a high quality of life. Cultural and recreational amenities, such as theatres, museums, parks, and restaurants further enhance their appeal, making them consistently rank among Europe’s most liveable cities. This combination of convenience, connectivity, and lifestyle draws a diverse population, from young professionals to families and retirees, who prefer the accessibility of city living. For institutional investors, this translates into consistently high demand for residential properties. This is particularly strong in the affordable segment, where moderate-cost housing paired with urban advantages ensures strong occupancy and stable rental income.

4. Institutional-grade market liquidity

Germany’s metropolitan real estate markets offer institutional investors a compelling combination of liquidity, transparency, and scalability. The major cities consistently record high transaction volumes – from individual units to large portfolio deals – thanks to their economic significance and deep pools of active domestic and international investors. This liquidity ensures that capital can be deployed or withdrawn efficiently, with ample counterparties available. A mature legal framework and robust data transparency further support pricing clarity, allowing investors to benchmark confidently against recent comparable sales. The presence of listed residential companies and professional intermediaries enhances market professionalism and the flow of information. These metropolitan regions also offer a steady pipeline of investable stock and experienced networks of brokers, appraisers, and financiers. This makes it feasible to build and manage scalable portfolios. Importantly, exit strategies are flexible, whether through asset sales or platform disposals, due to sustained institutional demand. Combined with strong fundamentals – such as housing demand, infrastructure, and economic resilience –this liquidity profile makes metropolitan residential real estate in Germany a highly attractive and dependable asset class for long-term institutional allocation.

Final thoughts…

Germany’s metropolitan housing markets currently offer a rare alignment of structural demand, constrained supply, and supportive policy – conditions that create a durable investment case for affordable residential real estate. Demographic momentum, economic opportunity, and urbanisation drive people into cities where housing remains scarce, particularly at the lower- and mid-market levels. While government reforms and subsidies aim to ease the pressure, the scale of the shortfall suggests that imbalances will persist for years. For institutional investors, this presents a chance to deploy capital into a segment that not only promises stable, inflation-linked returns, which are supported by subsidy programs, but also addresses a pressing social need. Yet this is not a market without challenges: navigating regulatory complexity, construction bottlenecks, and affordability thresholds will require discipline and local insight. Still, for those with a long-term horizon and a commitment to resilient, purpose-driven investment, Germany’s metropolitan affordable housing sector stands out as a timely opportunity [2] [3].