Germany reactivates state subsidies to energise housing construction

The German government has reopened funding opportunities for property owners and developers, signaling a renewed push to invigorate the construction sector and promote energy-efficient and age-appropriate housing. The state bank KfW is once again accepting applications for subsidized loans aimed at fostering climate-friendly new builds, age-appropriate conversions, and cooperative housing initiatives. The previous programme was stopped by the government at the end of 2023.

The relaunch of funding programs comes at a crucial time for the German construction industry, which has been struggling with widespread order cancellations and a wave of insolvencies over the past year. Federal Building Minister Klara Geywitz emphasised the importance of these initiatives in providing a much-needed boost to the sector when announcing the re-introduction of subsidies in Berlin recently. The move is seen as a strategic response to counter the uncertainties following a Federal Constitutional Court ruling in December 2023 and to address the depletion of funds due to high demand.

Among those able to immediately benefit from the subsidy programme are those building in a climate-friendly way or to convert a property suitable for the elderly.

Geywitz highlighted the economic impact of every euro of funding, stating that it triggers orders for tradespeople and boosts domestic demand. With signs of a slight upturn in the construction industry, the reactivation of these programs aligns with the government's objective to stimulate economic growth through the housing sector. "This is exactly the stimulus we need now", she said, with the re-introduction of the subsidies putting construction back on a "financially viable scale".

Climate-Friendly New Builds

The climate-friendly new build program (KFN) is a key component of the initiative. Launched in March 2023, the KFN had funded over 47,000 new climate-friendly homes by December of the same year, attracting investments totaling around €17.4 billion. The program aims to support builders committed to constructing energy-efficient and sustainable homes.

It is this KFN, cooperative housing, and age-appropriate conversion programs who are now accepting applications again. The KFN, in particular, offers subsidised loans with an interest rate of 2.1%, significantly below the current market rate for construction financing. The funding pool for 2024 is set at €762 million, down from the previous year's €1.68 billion. For the sceptical, this reduction raises concerns about the program's sustainability throughout the year, but optimists see hope it might even be increased in the course of the year.

Up to €150,000 per apartment

Still, the money is available right now for those who qualify. So, who does qualify?

Funding is available for new builds and first-time purchases of energy-efficient buildings with the Efficiency House 40 (EH40) standard. This means that the energy requirements of the property may not exceed 40% of the requirements of a standard house and specific limits for greenhouse gas emissions must be undercut. More money is available if the sustainable building quality seal (QNG) is also complied with.

Sustainable residential buildings are eligible for subsidised loans of up to €150,000 per unit. For climate-friendly residential buildings without QNG, building owners can receive up to €100,000 per apartment.

Investors, co-operatives, companies and private builders are eligible to apply. Grants for investments are only available to local authorities and districts, including for the construction of apartments.

An effective annual retail interest rate of 0.9% is possible with a loan term of 35 years and a fixed interest rate of ten years. Anyone applying for a development loan with a short loan term of ten years can receive an effective retail interest rate of 0.01% per year.

Cooperative Housing and Age-Appropriate Conversions

The cooperative housing program has also seen its funding increased from €9 million last year to €15 million in 2024. This initiative supports individuals forming cooperatives to pursue new construction or acquire cooperative shares. The age-appropriate conversion program, aimed at making homes suitable for the elderly, is allocated €150 million, double the amount from 2023. These grants could be used for recipients to, to for example, lower door thresholds to make it easier to use a rollator or wheelchair, converting the bathtub into a shower or making stairs easier to climb. The aim is for people to stay in their own homes for as long as possible and not have to move into a care facility, emphasised Geywitz.

Her Construction Ministry says there are around 2,000 housing cooperatives in Germany, collectively managing around 2.2 million homes. Around five million people live in co-operative housing.

Since October 2022, the federal government and development bank KfW have been promoting both the acquisition of cooperative shares in an existing housing cooperative and the establishment of housing cooperatives with the help of low-interest long-term loans. The funding is aimed at private individuals. Loans of up to €100,000 are subsidised. At the start of the programme, the interest rate is between 2% and 2.5%, depending on the term, explained the Minister. A repayment subsidy of 7.5% is also available.

REFIRE: With all the economic uncertainties and challenges in the German construction sector, the government's decision to reintroduce state subsidies for housing construction is at least a welcome proactive step. The focus on climate-friendly new builds, cooperative housing, and age-appropriate conversions aligns with its broader sustainability goals. There will be enormous demand for these grants.

The reactivated programs not only provide financial relief to builders but also contribute to the creation of energy-efficient and age-appropriate housing. The move is expected to have a positive impact on the construction industry, potentially attracting more investment and bolstering housing demand.

However, concerns about the sustainability of funding throughout the year, and the government's dodgy track record in fully seeing such projects through in the past, highlight the need for a comprehensive and consistent housing construction policy to ensure long-term success in revitalizing the sector.