A market note from Watson AM, Basel
Germany ended 2025 with 760'700 approved homes still unbuilt
At the close of 2025, Germany was carrying 760'700 dwellings that held a building permit but had no completion, according to the Federal Statistical Office (Destatis). The number barely moved from the 759'700 recorded a year earlier. Of that backlog, 307'200 were under construction. The rest, more than 450'000 homes, were approved and waiting.
A permit shows intent. A completion shows delivery. The space between the two is where Germany's housing problem now lives, and the gap is getting wider rather than narrower. The country completed 206'600 homes in 2025, the lowest count since 2012 and an 18% fall on the year before. Permits rose over the same period, up 10.6% to 238'100, so the queue of approved-but-unfinished projects stayed roughly where it was. More approvals, fewer buildings.
What the construction overhang (Bauüberhang) actually is
The construction overhang, or Bauüberhang in German, is the running total of dwellings that have been approved but not yet completed. It covers projects under construction, projects stalled at the shell stage, and projects that hold a valid permit but haven't broken ground. Destatis has tracked the measure since 1995.
For years the overhang was read as stored-up supply, a pipeline simply waiting to be built out. That reading is getting harder to defend. When approvals keep climbing while completions keep falling, the backlog stops looking like potential and starts looking like projects that can't get off the ground.
Why approved projects stall
Approved projects stall when the numbers stop working between the permit and the build. Three forces are doing most of the damage right now: construction costs that rose and stayed high, financing that got more expensive as rates climbed, and a permit-to-completion timeline that has stretched to 27 months on average, up from 20 months in 2020, and as long as 34 months for the apartment blocks cities need most.
The clearest signal sits in the permits that lapsed. In 2025, 35'700 German building permits expired without being used, the highest number since 2002 and about a quarter more than the year before. These are approvals that ran out of road. The plans were sound enough to clear the authorities. What they couldn't clear was the cost of building and the cost of money.
The pattern runs across Europe
The pattern repeats across Europe. Euroconstruct, the research network that works with the Ifo Institute, put 2025 completions across its member countries at about 1'500'000 homes, down 5.5% on 2024 and the weakest year in a decade (reported via Bloomberg).
The detail varies by market. ING's construction team had EU output falling 1.5% in 2024, flat through 2025, and only edging back to 1.5% growth in 2026. France stays weak, with permits slipping again from late 2025. Spain runs the other way, with permits and contractor confidence recovering on the back of stronger growth. Germany is the hardest hit of the large markets: completions there are forecast to drop 44% between 2023 and 2027, the steepest fall on the continent.
The causes rhyme from country to country. Land is scarce, approvals are slow, and build costs are high, and in some markets the electricity grid or environmental rules add delays of their own. The demand side hasn't moved. Germany alone is short around 1'400'000 homes, on the Pestel Institute's estimate.
What it means for property finance
When completions fall while permits hold, the bottleneck has moved from planning to funding. A developer with a permit, a site, and a buyer still needs capital that arrives on terms that let the project pencil. For a lot of mid-market projects, that capital got harder to find as banks pulled back from development and construction lending and tightened what they would underwrite.
This is the part of the market secured lenders watch closely. The collateral is real: a permitted site, a first-rank mortgage position, a defined exit. The need is acute and time-sensitive. And the mismatch between a bank's process and a developer's window is the gap private credit was built to cover.
There's a catch worth stating plainly, though. A financing gap rewards lenders who can move quickly, but only when the diligence underneath holds. Money that arrives fast and structured poorly is how a stalled project becomes a worse one. The discipline has to come before the speed.
Where Watson AM fits
Watson AM structures secured real-estate financing for mid-market developers across eleven European markets, funded by investor and lending-partner capital rather than our own balance sheet. The work runs through a nine-step due diligence process: legal review by Swiss and local law firms, a Conditions Precedent list, a security package built on first-rank mortgages and guarantees, notarial registration, and ongoing monitoring once the money is out.
That framework is the point. In a market where approved projects stall for want of funding, the lenders who matter are the ones who can read a file properly and still close on a developer's timeline. Several of the developers we've worked with came to us after months of looking elsewhere. The deal was sound. The financing just hadn't been structured to fit it yet.
We don't take every file, and we don't put capital to work that we haven't underwritten. What the overhang makes clearer is that the binding constraint on European housing has shifted toward financing, and that secured lending against well-diligenced collateral has a genuine role to play.
Investor and borrower material is available on request.
Common questions
What is the construction overhang (Bauüberhang)?
The construction overhang is the total number of dwellings that hold a building permit but haven't been completed. It includes homes under construction, homes stalled mid-build, and permitted projects that haven't started. Germany has measured it since 1995.
How many approved homes are unbuilt in Germany?
At the end of 2025, Germany had 760'700 approved but unfinished dwellings, according to Destatis. About 307'200 were under construction; the remainder were approved and not yet under way.
Why are approved housing projects not getting built?
High construction costs, more expensive financing, and longer build timelines have made many permitted projects unviable. In 2025, 35'700 German permits expired unused, the most since 2002.
Is this happening across the rest of Europe?
Yes. Euroconstruct estimated about 1'500'000 completions across its member countries in 2025, down 5.5% and the lowest in a decade. Germany faces the steepest fall, with completions projected to drop 44% between 2023 and 2027.
What does the housing backlog mean for property finance?
With permits holding and completions falling, the constraint has shifted from planning to funding. Permitted projects with real collateral increasingly need financing that banks have stepped back from, which is the gap secured private-credit lenders address.
Watson AM, Basel. This article is general market commentary for professional and qualified investors and for real-estate developers. It isn't investment, legal, or tax advice, or an offer of any financial product.
Sources
- Federal Statistical Office (Destatis), housing completions and construction overhang 2025, published 22 May 2026.
- Federal Statistical Office (Destatis), building permits, 2024 and 2025.
- Eurostat, building permit index.
- Euroconstruct / Ifo Institute, European housing completions 2025 (reported via Bloomberg).
- ING Think, European construction outlook, 2025 and 2026.
- Pestel Institute, German housing shortfall estimate.