Germany's affordable housing problem looks set to run and run

We scotched our plan to pen a lengthy article in this issue of REFIRE on Germany's likely future housing needs, abruptly altered by the influx of asylum seekers and potential immigrants over the past year.

There are no shortage of studies to fall back on, with seemingly every think tank and research house rushing to put out their own prognoses as to how big the hosuing shortfall will be, and indeed, where the demand for new housing will materialise.

We have at least five different studies on our desk addressing the likely impact of Germany's new arrivals on property markets. They differ so widely in their conclusions that we hesitate to focus on any one in particular, lest we create a false impression.

The studies make assumptions about likely arrivals in 2016 which were understandable three months ago, but may have been overtaken by events. It certainly looks like we're seeing the end of the long snaking columns of desperate humans traipsing northwards along the Balkan route to reach El Dorado in northern Europe. For this, most of Europe is tentatively grateful.

It remains to be seen whether the more recent arrangements with Turkey to house the migrants initially will not have spillover consequences. However, 2015's figure of 1.1m arrivals in Germany alone is unlikely to be repeated this year – and hence we treat with caution forecasts based upon both exaggerated numbers of new arrivals, and also the future settling of family members, which form a large part of the forecasts for future housing needs.

Even research groups like Empirica, whose work in the fields of demographics, health and ageing, and educational and training policy makes it inevitable that they study the migrant question closely, are sceptical of the conclusions that are being bandied about in the industry.  Board member Harald Simons, not a man given to unwarranted flights of fancy, believes that the 'hysteria' surrounding the refugee issue in Germany has coloured peoples' perception of the likely future housing demand.

Nonetheless, even he accepts that the steady upward trend in German rents and house prices would have petered out last year without the surge in immigration. The German government's target of overseeing the building of 350,000 new apartments each year is not aimed purely at providing housing for refugees, but at easing the housing shortage for ALL living in Germany on low or below-average incomes.

The government's 10-point programme in its latest housing offensive sets out lofty goals, but will require enormous commitment from Building Minister Barbara Hendricks' department – along with enthusiastic co-operation from at least three other ministries, including the finance ministry, which must deliver the necessary tax concessions to keep investors sweet .

It will need local authorities to push through housing ordinances that might normally take years to implement, if ever. Adding extra floors to existing housing, easing up on noise restrictions, increasing housing density and speeding up the issuing of building permits, along with less stringent energy-saving regulation – these are only some of the measures required.

It's an ambitious goal, with all sorts of scope for getting bogged down in a myriad of resistance that could outlast the current legislation period. It's also aiming at a building figure which many sources, such as the Cologne Institute for Economic Research (IW), believe is too low in any case. The IW believes demand is closer to 450,000 units a year, while Rolf Buch, the CEO of giant property manager Vonovia, said recently he sees the figure at at least 400,000 new apartments annually.

Whichever it may prove to be, it's a tall order at the best of times. The good news is that, for Germany, at the moment, these ARE the best of times. The country is in the middle of a building boom, with the number of building permits issued last year at 309,000 (a far cry from the 160,000 issued in 2008).  If not now, then when?

The real challenge will be to get the building that needs to be done, done in the right places. That means in the big cities, the providers of jobs and lifestyles where Germans, young and old, increasingly want to live.

And this is where, as the Germans say, the shoe pinches. Prices and rents are still rising in the big cities, because a disproportionate amount of young Germans and expected settled refugees are flocking to the big urban areas. New building is not keeping pace with demand

Germany is a big place.  It's easy to forget that, notwithstanding a population spike over the next five years, and despite the most bullish migration estimates, figures from the Federal Statistics Office show that Germany's population overall is still set to decline in the medium term, due to its own falling birth rate and its ageing population. Many rural areas are seeing their young people bleeding away to the prospering cities, with little intention of returning.

A timely new study by consumer bank Postbank shows how a 1% population increase raises city apartment prices by 3.5% and single–family homes by 1.9%. For a city like Berlin, where settled refugees could boost the population by 4.7%, property prices would rise by 14.5% over the next ten years, by the Postbank calculations. And that's not counting other inward migration, which will not be insignificant.

The mechanism is the increase in demand for subsidised housing, which then drives up demand and costs for middle- and higher-end rentals, and this translates directly into higher purchase prices. In German cities where the population is growing, the upward trend of the past ten years will continue for the next fifteen, says the Postbank. Sobering stuff.