As the General Election in Germany on September 26th approaches, the big parties have been clarifying their positions on housing and real estate legislation, subjects which will be to the forefront of voters’ minds as they head to the polls.
The last few months have seen a raft of new legislation, as the parties scurry to put long-debated and contentious new laws into place before the end of this legislation period. The new government will be faced with a barrage of new demands to be resolved over the next period, as voter unrest with the shortage of affordable accommodation and the behaviour of the largest property companies becomes too loud to ignore.
The German real estate industry has prospered mightily over the past twelve years or so since the financial crisis, but there is growing evidence that market conditions are about to get tougher. Here REFIRE looks at what the main German political parties are including in their election manifestos, and while none are likely to achieve all their stated goals, it’s a good indicator of what their policy positions will be, if push comes to shove faster than we expect.
Issues of housing and prosperity are common to all parties, but they’re now even hotter in view of the national and state finances, now doubly stretched by the effects of the corona crisis.
The Greens want to:
- Tighten the rental price brake and abolish the time limit completely.
- Enshrine the rental price cap in federal law.
- Limit rental increases to just 2.5% p.a.; maximum up to the rental price cap.
- Extend the analysis period used for rental price indices to 20 years.
- Further reduction in rental increases after modernisation (already reduced from 11% to 8%).
- Energy-efficient refurbishment should not affect rent/service charges and therefore should remain the responsibility of the landlord.
- Extend the ban on converting rental apartments to condominium apartments.
- Communities should be given more pre-emptive rights to purchase building sites at preferential prices.
- Extend the development obligation for vacant sites.
- Reduce purchase costs by reducing real estate transfer tax for owner-occupiers, but not private investors.
- Limit brokerage commission to 2% of the purchase price.
A number of these these tenant-friendly proposals will shock investors and landlords and deter them from entering the market, as investments and modernisations to existing buildings will no longer be profitable. The requirement to modernise to contemporary energetic standards will make older properties prohibitively expensive. This can be expected to herald changes in the overall market leading to a hike in supply and a fall in demand.
The SPD want to:
- Promote social housing and encourage private tenants to rent cheaply.
- Limit the rental increases to the inflation rate in tense markets.
- Tighten the rental price brake and abolish the time limit.
- Create a German rental price index and extend the analysis period by 8 years.
- Communities should be given more pre-emptive rights to purchase building sites at fair prices.
- Abolish the 10-year tax exemption for capital gains tax relating to non owner-occupied properties and introduce a planning betterment levy.
- Introduce a central property register.
- Support co-operatives with hire-purchase models.
- Councils should be given greater opportunities to exert pressure in city centres via simplified change of use, rental price limits, security of tenure for commercial occupiers etc.
- Further funding for neighbourhood developments.
The SPD manifesto is similar to the Greens, but in a somewhat diluted form. If imposed, it’s likely to lead to stagnation with a slight increase in housing supply, but a likely fall in demand.
The CDU/CSU want to:
- Impose less control on housing development and creation of 1.5 million new rental apartments by 2025, by offering special depreciation conditions to investors.
- Provide incentives to companies for the construction of staff or works apartments.
- Introduce programmes to replace construction child allowance.
- Increase the construction of social housing.
- Make rural areas more attractive with improved transport and internet connections.
- Make disused industrial and agricultural land available for the construction of subsidised housing together with more grants.
- Introduce zero real estate transfer tax on the first €250,000 per person for first time buyers of owner-occupied properties.
- Create a dedicated federal ministry for construction.
- Abolish the solidarity surcharge introduced after reunification.
The union of CDU/CSU tends to be more market-oriented and talk of promoting promote greater property ownership by offering first time buyers and owner-occupiers more depreciation and tax incentives and giving the population more financial latitude in becoming home-owners. With CDU/CSU in charge, market conditions overall could stay much the same, with supply and demand tending to balance each other out because of the proposed subsidies.
The FDP want to:
- Abolish the Renewable Energies Act in order to reduce the world’s highest electricity prices.
- Instead of expropriation and rental price caps, construction in the cities should be supported so that the market self-regulates.
- Introduce zero real estate transfer tax on the first €500,000.
- Increase linear depreciation from 2% to 3%.
- Accelerate the planning process with a simplified approval mechanism; also if the authority misses the deadline, the project is deemed to be approved.
- Increase the digitalisation of authorities and cadastral registers.
Naturally, the FDP approach is the most market-oriented and the one most favoured by the real estate industry and the one most likely to promote investment. Overall, it should lead to the market remaining stable, but the FDP’s simplified approach to planning should tend to drive supply.
The biggest issue facing the currently prevailing high price levels across the market will be the more complex environmental and refurbishment requires for both new-build and existing properties. Assuming another coalition government (almost certainly), the resulting outcome will be a blended version of some of the proposals above. It remains to be seen whether any of this will result in more affordable and liveable housing over the coming four years.
