Interestingly, it is the justification regularly criticized by the construction and real estate industry for the increased construction/purchase/rental costs.
But I have never believed it either.
It needs to be viewed a bit more nuanced. The increased rental costs result from the increased construction costs. Except for locations in rural areas, you already need new-build rents of at least €12-15/sqm for a project to be economically viable. In the Ruhr area, for example, this is virtually impossible. That is why there is also a severe housing shortage there (for anything other than junk apartments).
The issue of building regulations and political regulations rather concerns whether and how building can be done. Excessive fire protection regulations, unfeasible parking space requirements (or for a 6-family house in the prohibitively expensive underground garage), 5-6 years until a development plan is actually in place (and by that time construction costs have increased so that the project is no longer viable), 197 expert opinions from all kinds of authorities, etc.
Of course, these points also increase costs. But that is not the main price driver.
And of course, also the availability of land plots. When I see that in metropolitan areas sometimes 60-75% of the purchase price for an apartment is the land value share, it becomes clear why the apartment only has all-in construction costs of €4,000 per sqm but must be sold at €12,500 per sqm.