Make-up of Merkel’s new coalition will set a defining path for real estate
There is a mismatch between German housing needs and the actual new building going on. Here's the problem – too much housing is being built throughout the regions, where there's no shortage, and not enough in the big cities, where rents are soaring and there's not enough affordable housing.
We puzzled over this until Professor Michael Voigtländer of the Cologne Institut der deutschen Wirtschaft (IW), cleared the matter up in a recent discussion.
The new housing isn't standing vacant. On the contrary, young couples in provincial towns are buying new housing on the edge of town, with better family facilities and plentiful greenfield sites.
However, this leaves the town centres hollowed out, with uninhabited housing, a decaying housing stock and a greater social divide between those forced to live in poor-quality accomodation, and the better-off who can afford more options.
The housing shortage and rising cost of rent in the big cities is certain to play a significant role in the German elections on September 24th. For many voters in an otherwise prospering Germany, it is THE single biggest issue.
The uninspiring Martin Schulz and his SPD will need a miracle to recover in the polls, although the SPD may yet return as coalition partners of Angela Merkel after her inevitable election for a fourth term. Many, including your editor, believe they could benefit from clean break and a period in opposition to regroup.
Frau Merkel may find herself in a position strong enough to enter into a coalition with the rejuvenated FDP, and take on a robust opposition of SDP, the hard left Die Linke, the hard-ish right Alternative für Deutschland (AfD), and a floundering Green Party.
This will have consequences for real estate interests in Germany. While all parties profess deep convictions as to how to solve the housing shortage, some protestations carry more weight than others. All agree that Germans need to take more control of their own pension needs, including ensuring that the roof over their head is paid for when the time comes. But there is little agreement as to how to encourage Germans to buy their own homes – and if they're not willing to do so at a time of record low interest rates and a wide availability of credit, then resistance is deep-seated indeed.
The SPD wants to reverse the trend towards hollowing-out of regional town centres by subsiding regional house purchase. The CDU and the liberal FDP are focusing on the introduction of a threshold to reduce the burden of the land transfer tax, or stamp duty, payable by all individuals on property purchase. With rates of 6.5% (and rising) payable on acquisition, the tax is a significant chunk of the up to 15% transactional costs on buying German property – and hardly fosters an attitudinal shift towards private property ownership. The FDP are campaigning for a threshold of €500,000 before the Grunderwerbsteuer or transfer tax is payable.
The CDU are talking more of €100,000 threshold, plus a generous family subsidy (Baukindergeld) to encourage wealth accumulation through property. The Greens are appealing to municipal housing groups and co-operatives to pool resources to encourage more social housing, while the hard left are committed to battling it out with local urban legislation, freezing rents and outlawing gentrification.
On housing at least, Mrs. Merkel is clearly preparing for an ideological split with her SPD coalition partners. At a recent party gathering she conceded that the much-maligned Mietpreisbremse, or rental brake, which was introduced nationwide two years ago to cool down an overheating rental market, had been a debacle in both its original planning and its execution. The only way to combat a housing shortage, she said, was through new building, and it was clear that the Mietpreisbremse hadn't solved the housing problems. Well, yes, Mrs. Merkel.
The SPD have designs on that Mietpreisbremse, that measure that Mrs Merkel now recognises has not helped – in fact, may have exacerbated the problem, in that it discourages investment. If the SPD get back in as grand coalition partners, they intend to double their efforts to add fangs to a tool recognised to be ineffective.
The SPD has the support of the left-wing groupings to massively tighten the screw to dampen rent rises through the Mietpreisbremse. It's madness, everybody knows it won't work, but to be seen as "socially just" – the buzzword of the SDP - all parties, including Frau Merkel's CDU, have to be seen to be drinking the Kool-Aid.
Only the FDP are actively plotting to abolish it, and in the two states where the FDP are in a ruling coalition, it is a key pillar of their agenda, along with diluting the red tape and nigh-impossible eco-standards that appeared over the last four years that constrain new building.
While Mrs Merkel herself has never showed much personal interest in the housing question, much will depend on who her party opts to rule with after the election.
Her party has shown in the past that it has a strong tendency to be swayed on housing matters by its choice of partner.
August 30th, 2017