Coalition negotiations: What effect will the “traffic light” government have on the real estate sector?

Following the German general election, the SPD, Greens and FDP have now decided to enter into discussions with the intention of forming a new coalition government. The negotiations have been based on a 12-page exploratory paper or “road map” which gives a taster of what we can expect from the so-called “traffic light government”.

All of the stated objectives would have some impact on the real estate sector, particularly residential, which has been undergoing the greatest change and where views are polarised on the treatment of major issues such as the construction of ever greater numbers of residential units to keep up with demographic change and regulatory effects such as rent control. The road map’s headings highlight the key topics under consideration.

Modern country and digitalisation progress: a key proposal is the modernisation and particularly digitalisation of Germany, including both technology such as the internet and public sector processes. During the first year of office, the new government will take immediate steps to decide on and implement all necessary measures for the speeding up of administration, planning and approval procedures with the objective of cutting processing times by at least half. In order to make public authorities more digital, new laws will be subject to a digitalisation check. The federal government's digital policy strategy will be relaunched and responsibilities within the government will be reorganised. This will have a great effect on the real estate sector by accelerating planning procedures for new development, especially much-needed housing.

Climate protection in a social-ecological market economy: a major objective is to introduce new business models and technologies in order to achieve an improved carbon-neutral living and working environment based on renewable energies. In future, all newly-constructed roof areas able to support photovoltaic installations should be required to do so. This will be mandatory in the case of commercial buildings but - whilst the norm - voluntary in the case of residential new-build. Bureaucracy will be greatly reduced in order to dramatically reduce the financial burdens on private developers. The climate protection act (Klimaschutzgesetz) will be developed further and include building-related obligations.

The road map contains socio-economic proposals such as respect and opportunities at work including more regulation on zero hours contracts and the minimum wage, an overhaul of social security and the care sector, opportunities for children and families including education, innovation and competitiveness and a new offensive relating to affordable and sustainable residential construction.

Exploratory talks between the three parties have resulted in agreement that there will be an “alliance for affordable housing” at federal government level, which is welcomed by the real estate association IVD. The objective is the construction of around 400,000 new apartments p.a., of which 100,000 will be publicly subsidised with the promise of further financial assistance for the creation of social housing.

According to the Deutscher Mieterbund (DMB - German tenants’ association), this is nowhere near enough as DMB chief Lukas Siebenkotten explains “The current level of financial support cannot simply be continued, but must be significantly increased; such a continuation would in no way achieve the stated objectives”.

It is proposed to reduce the costs for housing construction via modular construction, increased digitalisation, reduced bureaucracy and increased standardisation. The Bundesanstalt für Immobilienaufgaben (BImA – institute for federal real estate) will be given more latitude to undertake building projects itself. One major promise is more planning certainty for the construction industry.

The road map makes no mention of a nationwide rental price cap, but the prevailing tenant protection regulations should be evaluated and extended as the lack of affordable housing and low level of new-build activity means that rental prices cannot stabilise at “market rents”, particularly in the major cities. One idea from the group is the introduction of a new “Wohngemeinnützigkeit” or “communal housing” format, a former version of which was repealed in 1990. This makes the construction of affordable homes an attractive proposition for developers on the basis of tax breaks and grants and other financial incentives rather than a pure market yield.

Both this and the proposed abolition of share deals in the real estate sector was welcomed by the tenants’ association. In the case of share deals, the individual states would be given more flexibility to decide on the amount of real estate transfer tax, which would ease the purchase of owner-occupied residential property; this would be financed by the closure of the tax loophole known as share deals, which would also help to combat illegal financing and money laundering. This would include proof of payment of tax in the case of foreign purchasers of commercial property and a ban on cash purchases.

The road map concludes with proposals for freedom, safety, equality and diversity, future investments and sustainable government finances and Germany’s position in terms of European and global democracy and security. Big words indeed, and the work of government will no doubt continue to be hampered by opposing views within a coalition government and amongst the many market participants and observers.