Germany doesn't have a housing problem. Germany has a flow problem.

Germany has been debating the housing shortage for years. The proposals are well known: more subsidies, faster approvals, less regulation, and more affordable housing.

Nevertheless, not enough housing is being built. Yet some subsidy programs even had millions of dollars in funding available that no one ever applied for.

Perhaps the problem isn't about money, construction costs, or skilled workers. Perhaps the problem runs deeper within the system.

Product Velocity therefore examines the housing market from a different perspective: Where is value created? How does it flow through the system? And what constraints are actually limiting throughput?

What follows is not a political discussion. It is about examining the housing market through the lens of systems engineering. Not everyone will agree with every conclusion. However, the analysis follows a simple principle: first understand the system, then discuss potential solutions.

The target is wrong

Let's start with the problem. The federal government set a goal of adding 400,000 new apartments to be attributed to.

That sounds like a goal. In fact, it's a metric.

A goal describes a desired outcome. A metric measures progress toward that goal.

The real goal is actually to make housing in Germany available more quickly and at a more affordable price.

The distinction is important. Building 400,000 new apartments is just one possible approach. The same goal could also be achieved by reducing vacancy rates, making better use of existing living space, or converting unused buildings. At this stage, it doesn’t matter which measures are appropriate.

That brings us to The first principle of Product Velocity: Value Thinking.

Before we discuss measures, we need to be clear about the value we want to create. The number of newly built apartments is just one indicator of this. What matters is whether people can find affordable housing more quickly.

OKRs for the Housing Market

Many organizations use Objectives and Key Results, or OKRs for short, to structure goals and outcomes. A highly simplified view is sufficient for the following analysis.

Objective 1: Make housing available more quickly

• The average time from the building permit application to moving in is decreasing within 5 years around 30 percent.
• The number of approved but uncompleted housing units is declining within 5 years around 40 percent.
• The annual number of completed housing units is rising within 5 years around 25 percent.

Objective 2: Increase the supply of affordable housing

• The percentage of households that spend more than 30 percent of their income on housing is expected to decline over the next 5 years around 15 percent.
• The average wait time for an affordable rental apartment is expected to decrease over the next 5 years around 50 percent.
• The number of available apartments in the lowest price tier is expected to rise over the next 5 years around 20 percent.

These OKRs are neither complete nor politically neutral. They are enough to shift the focus from actions to results. That is exactly where value thinking begins.

Where is value created?

The political debate often revolves around specific measures: more funding, less regulation, faster approvals, and more affordable housing. All of these proposals assume that the actual problem has already been understood.

Value Thinking starts earlier. The first question isn't: What action should we take? The first question is: What value do we want to create?

In the housing market, the answer is surprisingly simple. Value is created neither by building permits nor by subsidy programs, appraisals, or approvals.

Value is created when people are able to find and use suitable housing.

Two completed apartments that no one can afford create less value than one affordable apartment. A subsidy program does not create value if it delays the move-in date. An additional review does not create value if it does not reduce a relevant risk.

That does not mean that permits, regulations, or subsidies are unnecessary. They can play an important role. From a systemic perspective, however, they remain a means to an end. The end is housing.

This distinction may sound trivial. In complex systems, however, it is often overlooked. As a result, key performance indicators are optimized, processes are expanded, and new measures are introduced without verifying whether these steps will actually make more housing available more quickly.

That is why, in the next step, we will not focus on individual measures. Instead, we will examine the value stream. How does an idea for housing actually become a livable apartment?

The Value Stream of Housing

Now that the goal is clear, the next question arises: How is new housing actually created?

The public debate often focuses on individual aspects of the system. Sometimes the discussion centers on construction costs, sometimes on interest rates, sometimes on regulations, and sometimes on the shortage of skilled workers.

Product Velocity, on the other hand, considers the entire value stream.

Housing isn't built on the construction site. By that point, most of the decisions have already been made.

The value stream begins much earlier. Here is the perspective for new construction (as opposed to renovations and other options):

1. A need is identified.
2. A plot of land is becoming available.
3. The project is in the planning stages.
4. The project is approved.
5. Funding has been secured.
6. The apartment is under construction.
7. The apartment is being moved into.

At first glance, this process seems trivial. In fact, it contains an important insight. Each step depends on the previous one.

A construction company cannot build an apartment without a permit. A permit is of no use without financing. Financing is of no use without a suitable plot of land.

The throughput of the entire system is therefore not determined by the fastest step. It is determined by the slowest step.

That is precisely why discussions about individual measures often fall short. Even if a single step is completed twice as fast, the overall result changes little if the actual wait time occurs elsewhere.

From the system's perspective, therefore, it is not the number of applications processed, funding programs launched, or construction projects initiated that matters. What matters is how quickly an idea for housing becomes a livable apartment.

This brings another question to the forefront: Where are the bottlenecks? Where do queues form? And where does the system lose the most time?

Where does the river back up?

As soon as the value stream becomes visible, the discussion changes. The question is no longer whether more should be built. The question is where the work is.

Queues are often invisible in complex systems. No one sees the months a project spends waiting for a decision, or the initiatives that never get off the ground. No one sees the opportunity costs of a piece of land that lies unused for years. Yet that is precisely where the biggest delays occur.

A construction worker waiting for materials immediately notices the bottleneck. A project developer who has been waiting twelve months for a permit experiences the same bottleneck. The only difference is that the queue is administrative rather than physical.

Even a cursory look at the housing market reveals several areas where work is piling up:

• Plots of land are awaiting building permits.
• Projects are awaiting approval.
• Builders are waiting for expert opinions.
• Small businesses are looking for employees.
• Construction sites are waiting for decisions.
• Apartments are waiting to be connected to infrastructure.

At first, it doesn’t matter why the delay occurs. The reason may be valid. A safety inspection may be necessary. An environmental assessment may help avoid risks. A subsidy may be socially desirable. It makes no difference to the flow of the system.

Every extra step creates work. Every extra decision creates a queue. Every queue increases the time it takes to move in.

That is precisely why Product Velocity does not initially consider the political rationale behind a decision. Product Velocity focuses on the impact on the flow.

The key question is: If this step were twice as fast tomorrow, would people move into apartments sooner?

If the answer is no, the restriction lies elsewhere.

That brings us to the next question: Which of these queues actually determines the throughput of the entire system?

Where is the restriction located?

This is where it gets interesting. The public debate mentions many Causes of the housing shortage. Construction costs are too high, there aren't enough skilled workers, there are too many regulations, there isn't enough funding, and interest rates are too high.

All of these factors influence the system. However, this does not mean that they also constitute the system’s bottleneck. A bottleneck is the point that limits the throughput of the entire system.

This distinction is important. Ten different trades can be working simultaneously on a construction site. However, if the building permit is missing, nothing gets done. The bottleneck is not on the construction site itself, but much earlier in the value stream. That is precisely why it’s worth taking a look at the queues.

Many of the issues discussed do not arise until after a project has already been planned, approved, and funded. However, the actual housing shortage begins much earlier. An apartment that is never approved cannot be built or rented out.

This suggests one thing: the main constraint does not lie in the construction process. It lies in the decision-making stages regarding the creation of housing. In other words, the housing market is clearly suffering the consequences. However, the constraint lies at the intersection of policy-making, regulation, and permitting.

However, the restriction lies at the intersection of policy guidance, regulation, and permitting.

This observation also explains why many measures fall short of expectations. Increased funding boosts the number of potential projects. But that doesn’t eliminate the bottleneck. More staff on construction sites increases construction capacity. But that doesn’t eliminate the bottleneck. New regulations solve individual problems. But that doesn’t eliminate the bottleneck.

On the contrary. Every additional decision, every additional check, and every additional coordination step adds to the workload precisely where the system is already waiting to be processed. This pattern is familiar to systems engineers.

When engineering suffers from delayed decisions, the root cause often lies with the business side. When production comes to a standstill, the root cause often lies earlier in the development process. The visible problem rarely arises where the bottleneck actually is. The housing market seems to follow the same pattern.

The real question, therefore, is not how many apartments can be built.

The real question is how quickly a good housing idea can overcome the hurdles of planning, regulation, and approval.

Which principle is being violated?

The analysis began with a goal. This was followed by the value stream, the queues, and the bottleneck. Now the next question arises: Why does the bottleneck occur in the first place?

Product Velocity takes this into account four principles. When it comes to the housing market, one thing stands out in particular.

Value Thinking is being violated.

This is already evident in the political debate. The discussion centers on subsidy programs, regulations, building codes, reporting requirements, and key performance indicators. Far less often, however, is the question asked of how these measures actually contribute to the ultimate goal: providing people with affordable housing more quickly.

Every single step in the value stream incurs costs, ties up capacity, and extends lead time. That is why the same question should apply to every step: What specific value does it create?

This question is more complicated than it first appears. Does an additional check provide enough benefit to justify the extra wait time, or does additional documentation provide enough benefit to justify the extra work? Does an additional role in the process provide enough benefit to justify the extra coordination?

This analysis does not answer these questions. However, it does highlight where they need to be asked.

A second pattern is also noticeable.

Architect for Flow is being violated.

The housing market is certainly not lacking in activity. The system churns out a large number of applications, reports, reviews, consultations, and subsidy programs. But this does not automatically create momentum.

A system is designed for flow when work can move from demand to result with as few interruptions as possible. In the housing market, the opposite often seems to happen. New requirements are added to the system. Additional interfaces are created without adapting existing ones. This necessitates further decisions, which result in delays.

Every single step serves a legitimate purpose. Taken together, however, they make the path to a livable home longer.

The analysis does not suggest that individual regulations are flawed. Nor does it suggest that certain policy goals should be abandoned.

Instead, it shows that the housing market is often optimized from the perspective of individual measures. Product Velocity Instead, it looks at the system as a whole. Once this perspective is adopted, the discussion changes.

The key question is no longer which additional measure should be introduced. The key question is which measure will actually improve the supply of housing.

Conclusion

The housing market illustrates why product velocity is more than just an approach to product development. Public debate often focuses on specific measures: more funding, more regulation, less regulation, more staff, and more housing.

Product Velocity starts at a different point. What value are we trying to create? How does that value flow through the system? Where do bottlenecks occur? Where is the bottleneck?

Only once these questions have been answered is it worth discussing solutions. Perhaps that is why the most important insight does not lie in the housing market itself.

Perhaps the reason lies in the fact that many social challenges share the same characteristic: we discuss solutions before we have understood the system.

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