Speed of the essence in tackling Germany's affordable housing sector

No self-respecting German real estate conference of the past ten years has failed to address the problem of German demographics. The argument has been well-rehearsed, to the point of tedium. A nation of 80 million inhabitants is simply not producing enough children to replace itself. Germany must plan for a lop-sided population, with a heavy social security burden on the few young to support the many old.

But current events in Germany have made one thing clear. All bets are off. Whatever the outcome of Germany's internal and external deliberations, the unstoppable flood of refugees and asylum seekers determined to scramble into Germany by any means possible has radically altered the picture for the provision of affordable accomodation at the cheaper end of the market.

This will have huge consequences for all those charged with handling a surge in demand for bricks-and-mortar housing across Germany. Right now, with the authorities buckling under the pressure of providing cots, field beds, blankets and other necessities for the temporary housing of 10,000 new arrivals daily, it might seem fanciful to speculate on the impact this new wave of arrivals will have on the German real estate and construction sector.

But behind the scenes, new and existing players are jostling for position to take advantage of an unexpected development that will leave few parts of Germany untouched.

Germany has been absorbing 100,000 to 200,000 new migrants a year for the past number of years, a figure which includes refugees, asylum seekers and other voluntary immigrants. This was already acting as a counterweight to the country's gloomy demographic imbalance, but was also adding notably to demand for affordable housing. Urban authorities across Germany had already been struggling to find humane solutions to housing difficulties at the lower end of the market. This year will likely see up to 1.5m new arrivals. The current crisis calls for a different response altogether.

So far, according to market research group Empirica, the wave of refugees has not yet impacted noticeably on residential demand. In the wider German economy, there is even evidence that the seven-year period of rapid residential rent hikes has actually slowed down, giving some solace to tenants. As most of the recent arrivals are still being quartered in tents, school gymnasiums, and hastily commandeered commercial buildings while their status is being evaluated, their presence has so far been negligible. This is about to change dramatically.

Normally, after about six months in shelters, the refugees are distributed to smaller state-owned homes. Once granted "refugee" status, they then go out onto the private market and compete with all the low-income Germans for available accomodation. We're a matter of months away from this particular new form of conflagration, of which we have been given several ominous foretastes in recent weeks.

A session at the recent EXPO REAL on refugee accomodation hosted by Düsseldorf-based broker Aengevelt was packed to capacity, reminding some old-timers of the last gold-rush in refugee accomodation in the 1990's. Then, migrants came flooding into Germany from the Yugoslav wars, while more than two million long-departed Volga Germans from the Soviet Union arrived and needed to be housed, exercising their right to resettle under Germany's law of return.

The head of Germany's association of architects spoke up at the EXPO REAL session, saying it reckons that 400,000 new apartments will have to be built to house the refugees and their families over the coming years. There can be no slipping of standards, they maintain. No cutting of corners, or lowering building specs to meet impossibly low budgets. We're strictly against cheap building, was the message.

Dr. Wulff Aengevelt of the broker firm suggests that by the end of 2017 we could be looking at 3.5m refugees or asylum seekers, of which a minimum of 2.5m are likely to stay here. At 15 sqm of living space per person, this works out at 37m sqm of accomodation, or about 470,000 apartments, he says.

No matter which estimate is closer to reality, there is clearly a huge and immediate demand for new building at the lower end of the market. Speed is of the essence in mounting what is a new, multi-billion euro undertaking across the country in the affordable housing sector.

Aengevelt and others are calling for a whole new initiative involving all relevant political, municipal and commercial interests to fast-track new building ordinances in the sector, and to lighten the existing onerous burden on builders to comply with excessive regulation.

Such measures could include freeing builders from the obligation to provide parking spots, less stringent energy-saving regulations, and less obstacles to converting commercial spaces to residential use, along with enticing tax incentives and the accelerated issuing of permits.

One thing is clear - tensions will arise between the high-minded architects and regulation buffs on the one hand, and the housing pragmatists on the other. Let us just hope that Angela Merkel can be as decisive in knocking heads together to rise to this challenge as she was in inviting the world's dispossessed to come and make their home in Germany.