'Showdown' looming as demands for radical new housing policy grow louder

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In a further bad news blow for Germany's embattled construction and real estate industry, figures from the Federal Statistics Office showed that the number of building permits granted for apartments collapsed by 27% over the first half of the year.

In all, the authorities granted building permits for 135,200 new apartments, fully 50,600 fewer than a year ago. The figure for June alone was 28.5% down on the same month last year. The Statistics Office put the plunge in the figures down to higher building costs and deteriorating financing conditions. The half-year haul was described as "an incredibly bleak picture in residential construction" by Tim-Oliver Müller, the head of the German Construction Industry Federation.

The half-year figure was even more extreme for the issue of building permits for single family homes, down 35.4%, and dual-family homes, down a whopping 53.4%. It's becoming evident that even the token new subsidy measures introduced by the government from March 2023 to promote climate-friendly new construction are having little or no effect on the figures.

Calls from industry bodies for urgent government intervention are growing in volume by the day, as a wave of developer insolvencies gain ever-louder headlines in the trade and mainstream press.

ZIA, the main umbrella lobbying group for the real estate industry, said the next few weeks will see a mighty showdown in the industry - "A completely new start in housing policy is now urgently needed," it said. In a fresh statement, it said the latest figures are evidence of "a dramatic worsening of the housing shortage, which politicians must finally address with the necessary determination."

ZIA president Dr. Andreas Mattner said, "It's no longer enough to note with regret the figures emanating from Wiesbaden (home of the Statistics Office) month after month. This is not the time for mourning, but for an unbridled drive for action."

Referring to the gathering at Schloss Meseberg in August last year, headed by Building Minister Klara Geywitz and the Housing Summit in Chancellor Olaf Scholz's office at the end of September, both of which ended with high-minded proclamations of renewal in the building industry, Mattner called for a complete renewal of the coalition government's housing policy. "The Building Minister needs the support of the entire cabinet - including the full backing of the Chancellor", he said.

"As bad as the latest figures are, they don't tell us the full truth of what we're facing", said Mattner. That's because the figures include building permits for projects which will now never be completed, because developers will only actually build if they can do so without making a loss. And increasingly, they're not able to do this. "Increasingly, taking all factors into account, particularly the explosion in the cost of borrowing, these projects are grinding to a halt."

Everything must now be done to make building feasible again, he says. "The state must partially waive some of the costs it incurs on the share of the housing asset of about 37% - for example, by suspending the land transfer tax, rigidly waiving profit skimming models and new tax options as proposed by the Federal Minister with the degressive AfA (a tax-beneficial depreciation model for developers)."

ZIA's most important demands include: A large-volume "KfW housing loan programme" with an interest rate of two per cent for new buildings from standard EH 55 upwards; A temporary suspension of the land transfer tax (Grunderwerbsteuer), not just for buyers but also investors; and a Germany-wide commitment to designate 30% of a city's required new construction to encompass serial and modular construction.

Dirk Wohltorf, the newly-elected president of real estate owners association IVD, said the worsening housing situation can now not be resolved "without investment incentives such as effective subsidies, through which more people could again imagine themselves in a position to build or own residential property. Today, more and more frustrated buyers are crowding into the rental housing market, thus adding to demand and pushing up rents there."

He added that the "Home Ownership for Families" (WEF) subsidy programme launched on 1st June is not suitable for breaking the downward spiral, he said. For one, the hurdle of the expensive KfW 40 energetic standard is high. Even the maximum possible loan amount of €240,000 euros is no longer sufficient in many places to provide financing. And for the purchase of an existing property, the low-interest loan as a substitute for the now defunct "Baukindergeld" subsidy is no longer valid.

As if that were not enough, the new low barrier of potential housing starts could be lowered yet further, according to a new study from the labour union-friendly Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation. The study assumes that in the worst case only 223,000 housing units in multi-family and single-family houses will be completed in 2023 - compared to 295,000 in 2022. For 2024, the IMK considers a further decline to 177,000 units possible.

From the federal government's own projections, 400,000 new apartments per year are needed to combat the housing shortage, of which 100,000 would be social housing - a goal which has already been missed by a mile. The IMK point in particular to the self-fulfilling reduction in capacity as activity dries up, and developers and skilled labourers desert the industry, even before demand picks up in the medium term.

The cost of mortgage loans has been rising steadily since January 2022, practically quadrupling since then to about 4% for a ten-year fixed loan - killing off hopes of buying for thousands of would-be purchasers. With builders' costs rising overall by 16.4% over the course of 2022 - the highest level since records began in 1958 - it's a multiple whammy for the industry, which has effectively thrown up its hands in helplessness. Help, when it comes, is unlikely to come this year.