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UPDATE 1-Germany builds 285,900 new dwellings, highest in 16 years

Michael Nienaber

* Construction still falls short of expectations

* Government is aiming for 375,000 new units per year

* Lack of craftsmen, scarcity of building land (Adds capacity limits, analyst)

BERLIN, May 29 (Reuters) - German builders completed nearly 285,900 new dwellings last year, the highest number in 16 years, data showed on Wednesday, but construction still fell short of expectations and may not ease a drastic shortage of affordable housing.

Demand for property is soaring in Europe's biggest economy due to a growing population, increased job security and record-low borrowing costs. With demand outstripping supply in many urban areas, property prices and rents have soared in major cities such as Berlin, Hamburg, Munich and Frankfurt.

The Federal Statistics Office said that builders last year completed the construction of 250,100 new residential units, finished the renovation of 31,300 existing dwellings and built 4,500 units for non-residential purposes.

The total of 285,900 units was the highest figure since 2002, but marked an increase of only 0.4% on the year.

Germany's booming construction sector, which was one of the drivers of a rebound in economic growth in the first quarter, has reached capacity constraints in many regions as companies are struggling with a severe lack of builders and craftsmen.

Other factors include a scarcity of building land in urban areas and Germany's relatively complex building regulation.

"The key feature of the German housing market remains a lack of supply," said Deutsche Bank Research economist Jochen Moebert.

Already high price pressures will therefore continue for some time as the sector is unlikely to overcome its capacity limits, he said. "Many older workers will retire in the coming years and the number of apprentices has been stagnating for years."

Property experts say Germany needs to build at least 350,000 new homes every year to ease the shortage of affordable housing.

Chancellor Angela Merkel's right-left coalition government aims for 1.5 million new units until 2021. This means 375,000 new dwellings every year.

"The latest figures on completed dwellings show there is no end in sight for the housing shortage," said Andreas Ibel, president of the BFW construction and property association.

To reach the government's target of 375,000 new dwellings a year, an increase of 33% is needed, Ibel said. He called on the government to cut red tape for builders and on local authorities to provide more land for construction.

The housing shortage has become a hot political topic in Germany, with some left-leaning politicians calling for private landlords to be expropriated.

In Berlin, activists have started collecting signatures to force a local vote on a motion that would require the city to take back properties from any landlord that owns more than 3,000 apartments.

Polls suggest such a measure could pass, forcing the city to consider spending billions of euros buying back privatised housing instead of funding the construction of new social housing units. (Reporting by Michael Nienaber; Editing by Catherine Evans)