Deutsche Bank says in 2009, the German housing market sector fell to its lowest level in at least 50 years  -- at least with regard to housing completions. Frequently cited concerns about another housing shortage are highly exaggerated, however; only in a few urban areas is a severe housing shortage likely to materialise. Economist Tobias Just says in Germany, less than 180,000 housing units were completed in 2008. In 2009, completions probably even remained below that mark, and for 2010, the continuing decline in building permits sends similar signals. In the mid-1990s, the number of housing completions in Germany was three times higher than in the last few years, and in comparison to most European countries housing investment in Germany is also very low. This leads to the conclusion that the number of housing completions is too low; many observers see 400,000 as the benchmark level for annual units. This is based on the assumption that roughly 1% of housing stock has to be replaced each year. Is the supply of new housing therefore much too low in Germany? Here, the economist  says market signals are clear: housing prices in most cities and municipalities have been stable for years, German rents have been rising at a slower pace than consumer prices.

According to calculations by the Empirica consultancy firm, vacancy rates in West Germany even rose slightly in the last few years. East German vacancy rates declined from a relatively high level only thanks to the government demolition subsidy.

Apparently, there is no nationwide shortage of housing for three reasons: first, the number of households is increasing at a slower pace than in the 1990s, for the population has declined since 2003. The increase in the number of households is solely due to the continuing trend towards smaller households. Second, far fewer than the 400,000 housing units mentioned are withdrawn from the market each year: according to the official statistics for the last few years, less than 60,000 housing units per year have been withdrawn from the market - - two-thirds of these in the new federal states. Third, currently low construction activity follows a period of very high housing completions. Especially in East Germany, much more housing space was built in the 1990s than the market was able to absorb.

Tobias says it is important that housing activity in the last few years strongly focused on the economically stronger urban agglomerations in west Germany. The regional distribution of housing completions reflects the migration trends within Germany over the past few years.

In nearly 50 districts, at least three housing units per 1,000 inhabitants were completed in 2008. In the districts of Munich or Potsdam-Mittelmark, more than four housing units per 1,000 inhabitants were completed, in Ingolstadt no less than 5.5 und in Regensburg nearly 7 housing units per 1,000 inhabitants. At the same time, construction activity seized up visibly particularly in areas with high unemployment and thus a stronger decline in the population. In 2008, there were already almost 90 districts in which less than one housing unit per 1,000 inhabitants was completed. And areas with low housing activity are by no means limited to east Germany. A real divide has opened up, splitting the Federal Republic from Saxony to Upper Franconia and Northern Hesse to North Rhine-Westphalia and Southern Lower Saxony.

However, the economist says these relative differences between the regions do not reveal much as to whether - - regionally limited - - shortages are emerging on individual housing markets. In order to make an assessment, the absolute increase in the housing stock from 2000 to 2008 has been compared to the absolute increase in households in German regional districts. A positive value signals that the housing stock increased more strongly than the number of households. This was the case despite the low housing completion figures in many East German districts because the number of households already declined. In more than half of districts, the number of completions exceeded the increase in the number of households.

Tobias Just says for investors and policy-makers in housing, however, districts with a negative balance are particularly interesting since growth in households in this segment was stronger than growth in housing stock over the last few years: in relation to the respective market size, the negative balance was particularly high in Potsdam, Dresden and Erding. Balances are also strongly negative in Weimar, Leipzig, Lueneburg, Regensburg, Freising and Munich. In fact, housing prices in these towns rose slightly faster than the German average in the last few years. Thus, there are first signs of tensions on these markets. In particular, the area of Munich is worth looking at since housing vacancy rates are already very low in Munich -- here, a very negative indicator is much more relevant than in East German municipalities with higher vacancy rates. This does not justify a call for a nationally uniform subsidy policy, though.

As regards the coming decades, demographic trends will continue to reduce construction demand. However, Just says it must not be forgotten that at the same time, the housing stock ages. Demolition rates are likely to continue to increase, albeit at a very slow pace. Despite the demographic burden, more dwellings will probably be built in the next 20 years than in 2008 - - nevertheless, the total would still however be a long way short of 400,000 housing units per year; slightly more than half this figure for the next 20 years would seem a more realistic scenario.