Because Germany is mostly old money, inherited for generations, that is very risk adverse so instead of investing it in new SW companies or buying stocks, they park it in real estate in desirable areas and prop up this bubble since it's a sure bet for a return on investment. That's why they call it Beton Gold ("concrete gold").

That doesn't explain the lack of new building though. Is it NIMBYism?

Munich has very strict limits on vertical height so that cathedral spires aren't drowned out by the buildings. On the edge of the city you do see some taller office buildings but not in the core, and certainly not to the extent you would expect in a major city.

I think it has more to do with world wide's low interest rate which is pushing asset prices to sky rocket.

You now get a fast shrinking middle class and dismal living condition in lower class.

Of course, they could have combated this with more supply. Not sure if they have done so.

Low interest rates certainly allow you to afford a more expensive home, but inflation adjusted price per square foot isn't actually skyrocketing for most of the US outside of the west coast [0]. For example, Dallas/Fort worth and Houston metro populations, the 4th and 5th largest in the US have both grown a whopping 19% in the past decade and prices aren't skyrocketing there. But they have plenty of land surrounding their cities that can be developed to increase the housing supply.

It just seems weird to me. Why are people paying such high prices when there is farmland so close by that you could buy and use to build some condominiums, townhomes, duplexes or even single family homes.

[0]: https://www.supermoney.com/inflation-adjusted-home-prices/

If we keep plowing over farmland to build suburbs where will the farming get done?

Build taller. Skyscraper has been invented long time ago.

In areas not close to Munich?