Industry welcomes new government's housing and real estate initiatives

The political parties comprising Germany's new 'traffic light' coalition government - the SPD, the Greens and the Free Democrats - have emerged from their five-week long conclave to hammer out a working agreement for forming a new government. This time - in contrast to previous government formations - the overriding tone of the new coalition's message to the real estate industry is conciliatory and co-operative, which will come as a major relief to market participants, many of whom had been bracing themselves for a much more critical and punitive approach from the future lawmakers.

It is clear from the 173-page coalition document that the nation's housing problems took up quite a bit of the three parties' negotiations, underpinning as it does a growing sense of the economic divide widening between property owners and the large majority of renters, who are being increasingly impoverished by the soaring rises in rents and house prices of the last ten years.

The new government has titled its programme - "Dare to make more progress. Alliance for freedom, justice and sustainability." All going well, and assuming all three parties manage to get their members' approval for the coalition agreement, Olaf Scholz will be crowned as Angela Merkel's successor as the tenth post-war German Chancellor by the second week of December.

Scholz and his centre-left Social Democrats had put affordable housing at the centre of their election campaign, and had to defend their pledge - to build 400,000 new housing units every year, of which 100,000 will be publicly subsidised - through the weeks of negotiations with their Green and neoliberal FDP partners to make it into the final coalition agreement.

A huge increase in the funding for social housing construction and the social promotion of home ownership is high on the coalition agenda, as well as for the introduction of a new non-profit housing scheme with tax incentives and investment subsidies.

Among the measures designed to improve incentives to build, linear depreciation for new construction is to be raised from two to three percent. Serial construction, digitalisation, de-bureaucratisation and standardisation are being given high priority to contribute to lowering the costs of housing construction.

Pressure will be high on the government to deliver on its housing pledge, and, to show its commitment, the new government rapidly announced the creation of a new Building and Housing Ministry, with its own federal portfolio, shifting it away from and out of the Interior Ministry, where it was previously housed.

The SPD will announce the new minister on December 4th, but insiders reckon the decision has already been made to nominate SDP party member and previous environment minister Svenja Schulze to the post.

The ambitious target for new housing construction set by the Scholz-led coalition is 50,000 units more annually than the goal of the outgoing government, which undershot by about 20%. It is 100,000 more units than Germany's construction sector has ever managed to build - and a fourfold increase on houses built with public subsidies, to about €5bn annually - so it represents an enormous challenge for the government. While funding may have been secured outside the main budget to promote the housing agenda, it's clear that the Bundestag is going to have to amend many existing laws, or create new ones, in order to implement its objectives.

Additionally, the construction sector is confronting a hefty increase in the costs of labour, land and building materials over the past year, many of which are leading to building delays, according to the Association of the German Construction Industry.

Another costly measure is the planned flexibilisation of the land transfer tax (Grunderwerbsteuer), which is envisaged to result in an allowance for buyers of owner-occupied housing. As we've reported in REFIRE before, the resulting tax intake is likely to be at least €6 billion, whereas the closing of the loophole whereby companies buy real estate through share deals - avoiding the Grunderwerbsteuer - is likely to save only €1 billion.

Other planned measures are a one-time heating cost subsidy for threshold households, an increase in the housing allowance and the KfW subsidy programme for age-appropriate housing, along with a federal-state programme for student housing.

The Federal Real Estate Agency (Bundesanstalt für Immobilienaufgaben, BIMA) is being given considerably more independence, and a lot more staff, with the authority to invest itself and taking out its own loans. According to the coalition agreement, the goal is to concentrate responsibility for the planning, construction and operation of all federal buildings and federal properties at BIMA.

The BIMA remit will not extend, however, to becoming a sort of "national housing agency", although it is seen as having a role in driving the government's housing policies, said the SPD's Bernhard Daldrup, who helped lead the SPD's housing negotiations with the Greens and the FDP.

Notable though, from the coalition's statements, is the absence of any strict new regulation of rents at a national level - a subject that was very much to the fore before the election, particularly since the striking-down earlier this year by Germany's Constitutional Court of the Berlin attempt to impose a rent freeze on the city for the next five years. Insiders to the negotiations say that on this point, the positions of the three parties were very divided, before they agreed to rein in their horns and settle on a much more moderate position than had been expected by many in the real estate industry. (To industry observers, including REFIRE, this sounds very much like the FDP having got its way. The FDP's Christian Lindner, a financial hawk and a strong believer in promoting wider home ownership, is to become the new Finance Minister, overall in charge of the purse strings.)

Adjustments that WERE agreed upon were the lowering of the cap (maximum permitted rent increase) from 15% to 11%, and increasing the period of validity for comparable rent indices (Mietspiegel) from six to seven years. The Mietpreisbremse is to be extended but not tightened. Small and pragmatic concessions then, particularly from the Greens and the FDP, but also from the SPD who would seem to have bought time at least from their natural constituents among Germany's 65% renters with their promise of their massive new house-building programme. This can only be achieved by a genuinely constructive relationship with the country's real estate industry, along with its tenant associations.

Industry reaction:

The immediate response from many of the country's real estate associations and private companies was welcome relief at the moderate tone of the coalition's approach to dealing with residential and commercial property issues facing the industry.

Dr. Andreas Mattner, president of collective industry association ZIA (German Property Federation) was fundamentally positive about the outcome of the coalition talks, particularly the creation of a separate building ministry, which he said was "a major and important step forward".

ZIA said it was also positive about the standardisation of BIM procedures, the intended reduction of red tape and local bureaucracy, the continuation of the project funding programme for the future of inner cities and its integration into urban development funding, as well as the promotion of serial construction.

A long-standing ZIA demand will also be implemented with the increase of the linear depreciation for the construction of new flats from two to three per cent - but this MUST apply without restriction to all developers so that a really large number of flats can be built, said ZIA.

Less enthusiastic was Dr. Mattner about the seven-year rent index, rents would be frozen for the time being, despite owners being weighed down with costs - this diminishes the drive for new construction by private individuals, who still make up the lion's share in Germany. At the same time, extending the rent brake and lowering the cap has an additional counterproductive effect, because with rising management costs, stagnating rental income leads to more and more flats lacking the investment required to maintain them properly.

Andreas Ibel, the president of housing association BFW, welcomed the coalition programme, stressing how his association had successfully partnered with the city of Hamburg, then under the mayorship of Olaf Scholz, in creating a large number of 'affordable' housing units. However, "Building 400,000 apartment per year is a very ambitious goal. The new federal government must be measured against this. That is why it is right to raise the linear depreciation for new housing construction."

The BFW president added: "A central challenge for the future of our country is climate protection policy. In the building sector, however, progress is only possible if there is a stronger focus on economic efficiency. It is clear that the real estate industry wants to and will make its contribution to climate-neutral building stock. But it is also a fact that the steps taken so far are not enough. That is why we would like to sit down together with politicians and think about how to make progress in this area."

As we report elsewhere in this issue, the Institut der Deutschen Wirtschaft (IW Köln) believes that the coalition government's plans for building 400,000 new apartments per year is over-ambitious, and unachievable. It says that, In the long term, there is a risk of too-high vacancies. 100,000 new social housing units per year involves massive costs, with the financing still unclear. It also remains unclear how the coalition intends to achieve the climate protection goals in the building sector, or how they intend to specifically address the promotion of home ownership.

The announced lowering of the cap from 15% to 11% over three years will lead to lower returns for landlords, they say, but beyond that is unlikely to have any significant negative impact on housing supply and the extent of maintenance and modernisation measures. The non-extension of the highly controversial section 13b BauGB beyond 2022 is to be welcomed as it promotes small-scale housing development.

And, from the industry, several companies commented on the new government's plans. Rüdiger Salzmann, CEO of Westbridge Advisory, said: "The introduction of a Ministry of Building and Housing was long overdue. Social and climate factors should be considered and evaluated together in the real estate industry, and this can only be done in a bundled way in such a Ministry. only in such a ministry can this be done in a bundled way."

Francesco Fedele, CEO of financing specialist BF.direkt in Stuttgart, said: "The coalition agreement offers some interesting approaches - such as making land transfer tax more flexible for owner-occupiers, reducing costs through serial construction or increasing straight-line depreciation in new residential construction from two to three percent.

"However, here is what I would criticise: The coalition agreement makes many promises - for example 400,000 new flats per year or federal-state programmes for student housing, young people's housing and housing for apprentices. However, you will look in vain for reliable statements as to the financing of these promises."

Curth-C. Flatow, managing partner of Berlin-based FAP Group, said: "A separate Ministry for 'Building & Housing' shows that the new coalition is indeed paying attention to the real estate industry. It remains to be seen whether the weightings are given to the right topics, and to what extent there are strong link-ups with the financing industry here."

Jan-Hendrik Goldbeck, CEO of project developer Goldbeck, was also positive about the new plans: "With a view to achieving the climate targets in the building sector, the increased life cycle consideration and in particular the openness to technology of the coalition agreement is exactly the right approach. We also hope that within the framework of the housing initiative, the focus will be directed towards decisive levers such as serial, industrialised construction - the promised reduction of bureaucracy in approvals and permits will also contribute to this."

Sarah Schlesinger, CEO of digital and network specialist Blackprintpartners, also welcomed the creation of a new specialised Ministry focusing on Building and Housing, adding: "The Ministry faces a central task: more than 20,000 partly contradictory building regulations stand in the way of achieving ecological, social, but above all economic sustainability. Using the Netherlands as an example, the basis for new construction, and particularly the renovation of existing buildings, must be the reduction and amendment to significantly fewer, sensible regulations in the next one to two years."