Zoning of building land the big bottleneck for affordable housing

The biggest obstacle to the provision of more affordable new housing in Germany's biggest cities is the lack of suitable sites and a flawed building regulatory framework, according to the country's Federal Institute for Research on Building, Urban Affairs and Spatial Development (Bundesinstitut für Bau, Stadt- und Raumforschung (BBSR)), in a new paper.

Acquiring land for building has become so expensive in many places that building residential housing is simply not worth it, the study concludes. "The high level of land prices simply does not permit the free financing of new housing construction at affordable rents", it says. Germany has a housing shortage of at least a million units, mainly in the larger cities, a figure supported by a number of economic studies.

In Germany's biggest cities the average price for piece of building land rose between 2011 and 2016 by €76,000 to €259,000. Across the nation as a whole the same site rose by only €24,000. This equates to a rise of 27% from €129 to €164 per sqm, or a rise of 33% in the bigger cities to €350. This leads to minimum rent levels of €14 to €16 per sqm in urban areas, with further rises of 3% to 5% expected by the end of this year.

The price for a site for a single-family home rose in the period by 27% to €112,000 outside the biggest cities, while in the top cities it rose 25% to just over €200,000. As a rule of thumb, the cost of land is about a third of the total building costs of a property in a good area, and at least a quarter of the total costs otherwise. Property broker Engel & Völkers sees it rising to up to 40% in certain exceptional cases, while project developers in Munich have even reported land costs as high as 50%.

Land hoarding was cited by the BBSR as a cause of the steep price rise, with Berlin being particularly culpable, it said. Berlin is one of the few big German cities which is not almost completely built up within its city limits.

Among the reasons given for the price rises are the inward migration into the big cities and the low interest rate policy being pursued by the European Central Bank. The researchers recommend the loosening of building regulations in suburban areas, as well as the imposition of higher property taxes on unused land.

Outside the big cities the level of land transactions for residential home building remained stable between 2011 and 2016, or in rural areas actually rising by up to 15%, the BBSR study shows, while in the big cities transaction volumes fell by fully 30%, notably in cities such as Cologne, Frankfurt am Main and Stuttgart.

Barbara Hendricks, the outgoing building minister from the SPD ruling coalition party, has been urging higher taxes to dampen property speculation. "If local councils could tax unused land higher than land with buildings, then land hoarding would no longer be profitable, and the government and local councils should make introducing this a priority", she said recently.

However, the BBSR study views this as being unrealistic in the current climate. The process of issuing building permits would have to be radically overhauled to ensure that owners who did not proceed with building within a certain time limit would forfeit their land to the local county council, and this is still too impractical, it says. The BBSR study was based on data from every local county council and municipality nationwide.

A separate study carried out by property broker Engel & Völkers showed that 88% of 150 large property investors agreed that the big cities simply had to urgently rezone land for new building to tackle the housing shortage. In big cities like Berlin the opposite has been happening – the area available for new residential building has actually fallen from an annual 2 million sqm in 2008 to 1.4 million sqm last year. In Munich the available building land has remained stable, despite enormously increased demand. Market research group BulwienGesa says the available building land for new housing in Germany's Big 7 cities has been stagnating for years.

The net result of all this is that the big developers can only afford to build apartments in the high-price luxury segment, as lower-priced housing would simply give them no margin. Hence initial rents of €14 to €16 are now so typical, or about €1,120 a month for a 70 sqm apartment.

A study of 2,800 landlords by property owner trade association Haus und Grund shows that private landlords (with multiple housing units) raised their rents last year by 0.6% on average, to an average of €7.93 per sqm (per month) nationwide, a mere 5 cents more than the previous year. According to association president Kai Warnecke, "Private landlords are interested in long-term secured rental income, and are happy to do without the odd euro here or there if it means the tenant remains longer in the apartment."

What DID noticeably rise were the rents from single condominiums, which rose by 3.2% to €10.28. By contrast, apartments in two-family houses were actually marginally cheaper, said the respondents.