German social housing shortfall increases as stock falls 2.3%

There are many reasons for the current shortage of social housing in Germany and as many potential ways to alleviate the shortfall and control rental price increases, which result from an increasing imbalance of supply and demand. In Germany so-called social housing refers to publicly subsidised apartments which are provided to qualified social groups who cannot afford a place to live via the open market.

There is no end in sight for the shortage of subsidised housing for low income groups. Although the coalition claims to have reached its target of 100,000 new-build completions during its term of office, the number of subsidised apartments in Germany is falling continually, for example over the same period some 112,000 apartments lost their social housing status.

The problem started a long time ago. In 1990 there were around 3 million subsidised apartments in Germany (around 8.5% of all households). By the end of 2020 that had fallen to 1.1 million, a situation which requires significant government investment to put right. The GdW Spitzenverband der deutschen Wohnungswirtschaft estimated the new-build requirement to be 320,000, not the 100,000 built during the last four years.

There is little doubt that Germany requires higher volumes of social housing, particularly in the major conurbations. The existing stock is diminishing, in fact it has halved over the last two decades alone, particularly due to the fact that previously subsidised apartments lost their social housing status after a defined period of time and transferred to the private rented market.

And new-build is at a low level in most areas. The Greens member of parliament Christian Kühn estimates: “We lose 72 social apartments every day, that’s 26,000 every year. That is too much, and the only solution is more new-build, which requires ever more investment. At the end of the day it’s a question of money.”

The annual loss of 26,000 apartments equates to 2.3% of the stock. Over the last parliamentary term, the government injected €5 billion into social housing construction but the level of completions has fallen over the last two years.

The Left (die Linke) spokesperson Caren Lay says: “The situation means that there were significantly fewer social new-build completions in 2020, in fact 8% less year-on-year. This means that we now have an absurd situation that there are fewer and fewer social new-build completions whilst rents continue to rise.” She recommends 10 times the current level of investment and says that apartments’ status as social housing must remain in place long-term.

Daniel Föst, housing spokesperson of the FDP favours building new storeys on top of existing buildings for reasons of cost, as the land has effectively already been paid for. There is also the question of qualification for social housing. “We know from studies that 30% to 50% of social housing is so-called falsely occupied, i.e. people live in social housing who actually no longer qualify for the subsidised rent”.

But there is an underlying problem with new-build, which is shown by the private residential sector. Gerold Happ of Haus und Grund says that it is difficult to secure more building land in the most affected regions and new-build itself must be economically feasible, which is becoming more difficult to finance as building costs skyrocket. Building costs have risen by 81% over the last 10 years which means that ever-increasing amounts of investment and subsidy are required to build apartments and keep rents at affordable levels.

It is possible for the state to acquire a greater stock of apartments and change them back to social housing, but the number of apartments would not increase.

One possible cause is that the provision of social housing has been delegated to individual states since 2006, whilst central government pays only cash contributions. So there is potentially a different policy and a different problem in every state, but no central control.

The problem is emphasised by the situation in Munich. There will be over 40,000 outstanding applications for a subsidised apartment in Munich by the end of 2021. This increases by around 800 every month. In fact the higher the rental prices in an area, the greater the requirement for price-controlled and subsidised housing. In fact only 15,000 of these applications qualify and many are rejected because the applicant’s income is too high, in this case that applies to around 22% of applications.

The situation is even worse per capita in Nuremberg where 6,500 qualified applicants are waiting to be housed and the same situation spills over into smaller communities around Bavaria.

There are other ways of looking at housing shortages. Klaus Bauknecht, chief economist of the IKB bank says that excessive regulation such as the rental price brake, the ban on the transformation of rented apartments into condominiums and the stockpiling of apartments under state control via pre-emptive rights to purchase is not the way to ensure a supply of affordable housing.

In fact, what the state should be doing is encouraging lower income groups to become freeholders: “What we need to do is promote private ownership and make it possible for owners to participate in the asset price inflation resulting from the policy of the European Central Bank.” He advocates increased levels of social housing construction boosted by the low interest rate environment whereby tenants should be given the opportunity to purchase their rented apartment at a discounted price after a defined period of occupation (rather than the apartment simply lose its social housing status).

In his view it should be possible to offer the apartment at reduced rents until the occupant has gathered enough equity to make the purchase. He thinks that increasing this type of development would create property-based wealth and ensure lower rents, and distribute that wealth to more segments of the population.