German Chancellor Angela Merkel's cabinet will provide tax incentives to investors who build new flats in urban areas, in a drive to tackle a drastic shortage of affordable housing aggravated by a record influx of refugees, officialssays.

The government plan is expected to give Germany’s booming construction sector an additional push, with builing companies such as Patrizia Immobilien and Hochtief among the beneficiaries. More than a million migrants arrived in Germany in 2015, most fleeing war and poverty in Syria, Afghanistan and Iraq. With many sleeping in…