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LEG Immobilien's CEO Lars von Lackum has delivered an uncomfortable message to Germany's policymakers: €45 billion spent annually on insulating existing multi-family buildings between 2010 and 2022 - approximately €585 billion total - reduced average energy consumption from 131 kilowatt hours per square metre to 129 kWh. Less than 1% reduction for more than half a trillion euros.
The chief executive of LEG Immobilien, Germany's second-largest residential landlord with 170,000 housing units, is mounting a frontal challenge to the country's energy efficiency regulations. The Düsseldorf-based company, which trades on the Frankfurt exchange with a market capitalisation of about €5.5 billion, has BlackRock as its largest shareholder. In a series of interviews, von Lackum argues that current insulation requirements impose costs of €1,000 to €1,500 per tonne of CO2 avoided while generating rent increases that his tenant base cannot absorb.
"Two-thirds of our tenants want affordable housing first and foremost, not sustainable housing," von Lackum told the Klima-Labor podcast. "We should be racking our brains over that."
The affordability equation
LEG's average tenant pays €440 in basic rent for a 65-square-metre flat. When LEG replaces a heating system and applies the legally permitted modernisation levy of €0.50 per square metre, that represents an 8% cost increase. A complete renovation pushes the levy to €2-3 per square metre - increases von Lackum argues are simply unaffordable for his tenant profile despite LEG maintaining a rent collection rate exceeding 99%.
The cost-benefit analysis extends beyond tenant economics to construction viability. Von Lackum points to Germany's construction costs of approximately €4,000 per square metre compared to €2,000 in Poland. "I don't get the impression that new apartments in Poland look significantly different or burn faster than ours," he said.
Behind those cost differentials: regulatory proliferation. Germany's building regulations quadrupled over 20 years, from 5,000 to 20,000. Suspended ceiling requirements increased from 14 centimetres to 24 centimetres for noise insulation, requiring more steel and concrete. Even electrical socket quantities are mandated. "I don't know if anyone has ever said, 'I'm not taking this flat because it has too few sockets,'" von Lackum observed.
The regulatory burden varies by federal state, creating what von Lackum calls "petty statism." Fire protection requirements differ between Dülmen and Greifswald with no apparent rationale. "We urgently need to move away from this," he said. "We need uniform rules."
These construction barriers combine with rent control mechanisms to create what von Lackum describes as market paralysis. Berlin's rent brake limits new rents to the local comparative rent plus 10%, while cap limits restrict increases for existing tenants to 15% over three years. The result: "Families live in apartments that are too small, and seniors in apartments that are too large."
The dysfunction extends to permitting timelines. Berlin applicants face waits of 10 to 15 years for building permits. Even in North Rhine-Westphalia, where LEG concentrates its portfolio, the average is six years. These delays help explain why Germany's annual housing production sits at 200,000 units against a government target of 400,000 and historical output of 600,000 in the 1990s.
Alternative approach
Von Lackum's prescription focuses less on eliminating energy efficiency standards than reorienting them toward cost-effectiveness. He questions the "dogma" of comprehensive insulation - what he calls wrapping buildings in "summer jacket, autumn jacket and winter jacket" layers - in favour of targeted interventions: renovated windows, attic ceilings, basement ceilings and doors for improved comfort, combined with smarter thermostats and heating systems.
The LEG chief also highlights the unreliability of energy performance certificates, which are supposed to indicate a building's energy needs. "If you ask four energy consultants, you will get four different results," he said, noting that a house could be classified in efficiency class C or class A depending on the assessor's approach to windows and insulation. LEG instead uses actual utility bills to calculate CO2 emissions and measure reduction performance.
On the financing side, von Lackum advocates reviving the KfW (Kreditanstalt für Wiederaufbau) low-interest loan model used to rebuild Germany in the 1950s through 1970s. LEG still operates more than 32,000 subsidised flats from that era. Under this structure, developers receive cheap capital in exchange for offering below-market rents for decades.
The proposed "construction turbo" requiring municipalities to issue building permits within three months offers promise, but von Lackum notes it contains no enforcement mechanism. Implementation will require "courageous people in planning offices and town halls" willing to override neighbourhood objections over building heights and shadow impacts. "You can always ask all the residents first, but someone will always complain," he said. "Do we want to wait five to ten years every time for the courts to decide on a construction project?"
Von Lackum acknowledges the risks in wholesale regulatory reform. "You're bound to repeal one regulation or another and then realise: damn, that was a mistake," he said. But he argues the alternative is worse, pointing to the wave of project developer bankruptcies in recent years. "Once they're gone, we won't be able to build anything anymore."
The interest rate environment compounds these structural challenges. Germany has moved from zero rates to approximately 4%, while construction costs have risen by double-digit percentages, partly due to supply disruptions from the Ukraine conflict.
For institutional investors evaluating German residential exposure, von Lackum's critique highlights a fundamental tension: sustainability mandates are colliding with financial viability in Europe's largest economy. His central argument - that climate transition must be affordable or lose public support - raises questions about the durability of current policy frameworks.
"If we want to achieve our climate targets, the climate transition must be affordable and sustainable," von Lackum said. "Otherwise, we will lose people."
Germany's second-largest residential landlord has drawn a line. The regulatory status quo, von Lackum argues, is economically unsustainable for both operators and tenants. Whether policymakers will recalibrate insulation standards, streamline regulations and revive subsidised financing mechanisms remains uncertain. What is clear: the cost-benefit calculus of Germany's energy efficiency drive faces intensifying scrutiny from the investors and operators expected to fund it.