A week before the annual ZIA Property Day in Berlin, the largest gathering of leading German real estate players organised by the ZIA, the leading lobby group for the real estate industry, the ZIA itself announced a radical new departure from its traditional demands in the face of an impending housing catastrophe.
It issued a broad appeal to the federal government, the 16 individual Länder, local municipalities and the real estate industry itself to exhort themselves to new efforts to stave off the looming disaster resulting from housing construction coming to an almost complete standstill.
Long-term ZIA President Dr. Andreas Mattner presented his organisation's new initiative by announcing a clear break from previous calls for a €10 billion subsidy programme for the building industry, which it now sees as simply too small to make any difference to the problems facing the industry. It is now also calling for a radical reduction across the nation in the Grunderwerbsteuer, or land transfer tax on residential property.
Dr. Mattner said: "State representatives must now give the real estate industry the greatest possible freedom so that it can become active itself. Over the years, the state's share of the housing asset has risen to about 37% percent. Exploding real estate transfer taxes, fees, profit skimming models as well as specifications and restrictions account for far more than one third of the costs. This is precisely where the key levers are, if a turnaround in the German housing market is to be realistic."
Grunderwerbsteuer, or real estate transfer tax
The ZIA is calling for a gradual reduction on all the Länder-determined real estate transfer tax to 3.5% by 2025, without restriction, or to abandon it altogether (the tax can be as high as 6.5% on property purchases in many of Germany's federal states). Mattner said: "We have to face the alternatives. If housing construction grinds to an almost complete standstill, there will be nothing to impose tax on and nothing to skim profit from. And worst of all, we end up with no new housing."
Loan Programme at 2% interest
The fundamental framework for Germany's housing construction programme, which will effectively have run out by 2024, is now no longer fit for purpose. Housing construction yields of 2-3% are of no use if lending rates are 4% - there's no incentive for anybody to build.
Instead, ZIA is calling for a large-volume loan programme from the federal government at 2% interest, with the money being repaid without any medium- or long-term negative effect on the federal budget. Without such a programme, fewer apartments will be built, and less sales tax will be generated by building activity. The original €10bn subsidy programme from the Finance Ministry is now a mere "drop in the bucket", says ZIA, compared to the loss of profit by builders collectively in being out of the market. Earlier calls for €50bn and more in lost subsidies are likewise unrealistic in light of the federal government's other commitments.
ZIA Vice-President Jan-Hendrik Goldbeck highlighted another major issue - the unfeasibility of the government's other major housing initiatives, such as building 400,000 units a year, or making up for the shortage of 700,000 apartments by 2025. Given German regulations and other technical challenges, these goals simply cannot be achieved.
The only way to get back on track is a radical overhaul of the building code as proposed by the Alliance for Affordable Housing, which although "right and good", are no longer sufficient. A new path for serial and modular construction, which could deliver housing in six months, is now the only way forward.
According to Goldbeck, "There is indeed a clear and broad commitment to this procedure. In practice, however, hardly any permits are issued." While about 5% of German apartments built are serially/modularly built, there is still a culture of viewing such buildings as of supposedly inferior construction. Goldbeck added, "30 percent of a city's required additional construction should immediately be designated for serial and modular construction. Both conventional and life-cycle building materials such as wood should be used."
This would leave enough room for individual construction in a neighbourhood - but also the opportunity for affordable sustainable housing within a very short time. ZIA is calling for serial and modular construction to be included in the consideration process in Germany's Federal Building Act.
ZIA also wants a change of mentality in respect of the tenancy law, in particular in the privately-financed segment of the market, a recognition that in a social market economy rents can be permitted to rise in line with market conditions, rather than being held artificially low through rent brakes and other restrictions, which have the effect of reducing supply.
To achieve this, Mattner appealed to the real estate industry itself to play its part in enabling a collaborative transition period in tough times. "The real estate industry is focusing on the most important thing in this process: building instead of standing still. If the federal government, the states and the municipalities do indeed act in a concerted action on housing, there must at the same time be a voluntary commitment by the construction industry as part of the real estate industry to refrain from layoffs as far as possible by December 31, 2024." In this way, he said, the risk could be countered that there would be no capacity available once the construction sector recovers.
Mattner also appealed for the establishment of a government-level "construction cabinet" headed by Chancellor Olaf Scholz, whose own track record in the housing sector while Mayor of Hamburg is generally viewed as highly positive. This should include a system of 'housing commissioners' with powers to co-ordinate federal government initiatives down at state and municipal level to speed up execution.
