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Subsidised housing is quietly becoming one of the most attractive niches in German residential investment. That was the clear message from a recent panel discussion hosted by RUECKERCONSULT, featuring Florian Tack of Colliers Germany, Dr. Tim Schomberg of Kingstone Real Estate, and Jan Bewarder of REM Capital. The trio, each active in the subsidised housing segment, pointed to a striking combination of high demand, regulatory support, and counter-cyclical yield advantages.
“The deficit in subsidised housing has already passed 900,000 units,” said Tack. “And we expect another 430,000 to fall out of the system by 2035 as ties expire.” Despite a modest increase to 27,000 newly built subsidised units in 2024, supply continues to lag far behind structural demand. The political target of 100,000 new units per year would only bring the national stock to 1.3 million by 2030—far short of the 2 million widely viewed as necessary. Tack considers even 850,000 units a more realistic target over the next five years.
Institutional capital, meanwhile, is moving in. Kingstone Real Estate, through its €500 million special fund “Bezahlbares Wohnen Deutschland”, recently acquired 180 subsidised apartments across Mannheim, Nuremberg and Fürth. “This isn’t just about the ‘S’ in ESG,” said Schomberg. “It’s also about returns. We’re currently achieving a distribution yield of more than 4% annually in subsidised stock. That compares favourably with the 2–3.5% typical of market-rate developments—especially in the current cost environment.”
Yield mechanics: lower land costs, financing, subsidies and fixed rents
The reasons for the yield differential are not difficult to identify. Subsidised schemes often benefit from reduced land costs, development loans with interest rates far below market, repayment subsidies, and fixed long-term rent levels. “You’re locking in your financing at a time when volatility is a key risk,” said REM Capital’s Bewarder. “If you secure a 20- to 30-year loan, you’ve effectively removed the interest rate question from the equation.”
That interest rate security is proving decisive for investors rethinking their exposure to residential after the sector’s sharp correction in 2022–23. “It’s not just defensive capital looking for safe yield,” said Tack. “It’s also those with a long-term view on rental stability and post-subsidy upside.” Once the subsidy period expires—usually after 25 to 30 years—the flats revert to the free market, offering a path to higher rents and capital appreciation.
But subsidy structures are anything but standardised. Germany’s federal system has led to a patchwork of funding models that vary widely between Länder. Bavaria, Baden-Württemberg and Hesse are currently favoured by investors for their relatively generous and administratively clear funding schemes. In many cases, social housing subsidies can be combined with federal support for climate-friendly new construction (KFN) or energy-efficient building upgrades (BEG), further enhancing returns. “In the right locations with the right mix of programmes, the numbers work,” said Schomberg. “But that calculation can be very sensitive to regional rules.”
Demand-side risk, by contrast, is close to zero. “Rental security is one of the defining features of this asset class,” Schomberg noted. Demand for affordable housing remains structurally high across urban and suburban areas. Depending on the federal state, eligible tenants can save up to 25% on rent compared to market-rate flats—rising to over 40% in Germany’s Top 7 cities. “You’re offering a better deal to the tenant and a stable yield to the investor. There’s no contradiction there,” said Schomberg.
Stock of social housing has been shrinking for years
Still, without serious policy reform, the boom could prove short-lived. According to the Pestel Institute, only 250,000 new homes of all types were completed last year—far below the government's now widely-mocked 400,000 target, let alone the needs of the subsidised segment. Axel Gedaschko, President of housing federation GdW, was blunt: “It is undeniable. Germany has a massive shortage of social housing. The stock has been shrinking for years.” He called for reduced construction standards, discounted land pricing, and a permanent federal subsidy framework to attract more institutional capital into the segment. “What we need is a brake on costs and a boost to building,” Gedaschko said.
The VdW, IG BAU, and other members of the “Social Housing” alliance have called for a 7% VAT rate on social housing construction and more flexible funding conditions. In Berlin, the soon-to-be outgoing Federal Construction Minister Klara Geywitz has pledged €3.5 billion in 2025 and €21.65 billion by 2028 for social housing. But past promises have fallen short of targets. Geywitz insists the tide is turning: “More than 3.9 billion euros in housing benefit was paid out in 2023. We are investing, and the funding is there.”
Whether investors believe the delivery pipeline will materialise is another matter. “We’ve been promised stability before,” said Bewarder. “What we need now is a single, reliable, nationwide framework. Otherwise, the institutional capital won’t scale.”
For now, the numbers speak for themselves. A well-located subsidised housing project can offer a higher yield, lower volatility, and better tenant retention than most market-rate alternatives. With exit optionality after 25 years and rising political attention, the sector no longer resembles a niche. But its continued growth depends on political clarity and subsidy coherence—without which the current momentum could falter just as it begins to attract serious capital.