What is the German government doing for the housing market?

Making building and housing affordable What is the German government doing for the housing market?

The German government has ambitious goals for the housing market – under a new housing initiative it aims to work with the state and municipal authorities to create 1.5 million housing units before the end of this legislative period. In Germany’s larger towns and cities in particular, demand for housing outstrips the supply. Housing has become a relevant social welfare issue. These areas need more housing units and affordable rents, while in other parts of the country houses and flats lie empty and prices are actually falling. Here is an overview.

A construction worker carries wooden planks across a building site.

The German government aims to step up housing construction and ensure that housing remains affordable

Photo: Arne Dedert/picture alliance/dpa

The status quo and the government’s goals

In Germany, the housing market is developing very differently from one part of the country to another. In major urban centres, housing is often in short supply, while demand is high, resulting in rising rents and house prices. In other, often more rural regions and towns, properties lie empty and both rents and house prices are stagnating.

Since construction hit an absolute low in 2009, significantly more housing has been built again, even in the major towns and cities. With 285,000 housing units completed in 2017, the level has risen by about 80 per cent. In 2017 apartments accounted for 57 per cent of this total. Overall, housing construction accounted for 57 per cent of all construction activities. 

The vast majority of the population is in favour of more social housing and more financial assistance, according to a study conducted recently by the Allensbach Institute (2018). Most people in Germany (88 per cent) are satisfied with their housing situation, according to the study. About half of respondents (45 per cent) deemed their last rent increase to be moderate.

Yet the pressure on the housing market in Germany’s economic boom regions remains high, partly because the number of building permits issued since 2009 is higher than the number of housing units completed. Additional capacity in the building industry and faster processes including series construction are to help increase the rate of construction. But, demand that has built up over a period of several years can only be gradually reduced.

While the level of rents for new rentals rose by about 5 per cent on average in 2018, rents for sitting tenants rose only moderately, by an average of 1.6 per cent. By contrast, the price of land for building has risen by 50 per cent since 2010. Construction itself has also become significantly more expensive over the last few years, with increases above the inflation rate. In 2017, the costs of building were almost 3 per cent higher than in 2016. Whereas in 2015 and 2016 it was primarily labour costs that pushed prices up, in 2017 the costs of materials were an additional factor in rising prices. 

In the face of these trends, the German government has now set itself the goal of facilitating the construction of 1.5 million new housing units – with measures 

  • to step up housing construction and
  • to ensure that housing remains affordable.

Achievements to date

… to step up housing construction

  • Between 2018 and 2021 the German government will be making available a total of 5 billion euros to promote social housing construction. When added to the funding put up by the individual states and local authorities, this will make it possible to build more than 100,000 social housing units. It will also help increase the supply of housing and ensure affordable rents. All this will be made possible by the fact that the government has passed a new act of parliament (Gesetz zur Anpassung der Entflechtungsmittel) which makes it possible to increase federal funding to 1.5 billion euros. Thanks to an amendment to the German Basic Law or constitution, the funding needed to build social housing can also be provided for 2020 and 2021.
  • The new allowance to help families with children acquire real estate (Baukindergeld) means that more families can buy or build their own homes. A total of 9.9 billion euros has been earmarked for this allowance for the term of the measure. By the end of July 2019, almost 124,000 applications had been received from families with children, involving a total volume of about 2.6 billion euros. According to the Federal Ministry of the Interior, Building and Community, many of the 55,000 or so families that have already received the allowance are classed as lower income families. Some 60 per cent of the families who have received the allowance so far have a pre-tax annual household income of up to 40,000 euros. About 40 per cent have a household income of up to 30,000 euros. 
  • The new law on fiscal incentives to build housing for rental (Gesetz zur steuerlichen Förderung des Mietwohnungsneubaus) came into effect on 1 August 2019. It introduces a special write-down provision that makes it attractive to build new apartments for rental. This creates incentives for private investors to build affordable apartments for rental. In future, 5 per cent of the procurement and production costs of a new apartment for rental can be offset against taxes for a period of four years by investors. The option of writing off 2 per cent per annum remains unaltered.
  • Central government is encouraging urban development at a continued high level. For 2019 about 790 million euros are available. The federal and state governments have agreed that town and city centres will be the focus of urban development and that greater use should be made of wasteland within municipalities. 
  • To make the placing of public construction contracts more flexible and swifter, the German government has honed the German construction tendering and contract regulations, Part A (VOB/A).
  • During the last legislative period, the German government already updated construction law and in 2017 introduced "urban areas" as a new category of building area. Housing units may be built even in very dense urban areas and in industrial or commercial zones, and buildings in these areas may be used as housing. That means more housing while using less land.

… to ensure that housing remains affordable

  • Between 2018 and 2021, the German government will be providing 5 billion euros to promote social housing, and thus foster the availability of affordable properties for rental. 
  • Tenants’ rights are to be enhanced by improving the brake on rental costs. 
    In mid-2015 the German government introduced what has become known as the brake on rental costs. We have evaluated its impact: it is effective where federal states use it. The report on housing allowance and rentals also indicates that rises in rents for sitting tenants were moderate, with an annual increase of 1.6 per cent over the period 2016 to 2018. The new principle in the law governing estate agents on the rented property market is that the side that contracts the estate agent pays the fees.

    To make the brake on rental costs more effective, since the start of this year landlords have been required to provide information about any exemption from the brake on rental costs and on the rent paid by the previous tenant before a lease is signed. It is thus easier for people renting property to take action against any failure to comply with the brake on rental costs. And only 8 per cent of the modernisation costs incurred by a landlord can now be passed on to tenants in the form of an increase in rental costs, rather than the 11 per cent which has hitherto been permissible. There is a cap on the permissible sum, thus better protecting tenants against any attempts on the part of landlords to exploit the modernisation provisions.

Workers build new apartments in Munich.

Building new apartments - the German government has also reformed housing allowance

Photo: picture alliance / dpa

And this is what we will be doing next

… to step up housing construction

  • The Institute for Federal Real Estate (BIma) is to be mandated to build new housing. It is currently identifying which of its real estate is suitable for the construction of housing for federal employees. 
  • To speed up building, a specimen type-approval for state-level building codes is now available. A type-approval can speed up the process of awarding building permits because the building contractor no longer has to apply for a permit for every individual house. It is sufficient to obtain one approval for the same type of house or apartment. For this, however, type-approval must be incorporated in the building codes of the federal states. 
  • Federal states and municipalities are pushing ahead with the digitalisation of planning law and construction supervision procedures. Processes are being optimised and red tape cut. Currently, the German government is, for example, working with three federal states to lay the foundations for online applications for building permits. This should make it faster and cheaper to issue building permits.

… to ensure that housing remains affordable

  • The German government has reformed housing allowance. As of 1 January 2020 more people will be entitled to receive housing allowance and the sum payable will be increased. The maximum rents will then take into account regional differences and will be graduated. The allowance will also apply up to a higher level of rent.
  • In future, housing allowance is to be revised once every two years, to ensure that it better reflects trends in rents and income.
  • In this way, elderly people in particular should be able to stay in their familiar environment.
  • BIma is helping address the difficult situation on the housing market by selling land more cheaply to local authorities and their housing associations to enable them to build social housing. In 2018 properties were thus sold that will enable 5,700 housing units to be built, including some 1,100 social housing units.
  • In 2019 BIma is planning to sell land that is to be used to build some 8,000 housing units, of which about 3,300 will be social housing units.
  • The Federal Ministry of Justice and the Federal Ministry of the Interior are currently exploring options to prevent rented property becoming owner-occupied.

Further prospects
At the meeting of the coalition committee on 16 June 2019 we agreed that affordable housing, the creation of additional housing and green living were important focuses of action of the coalition. The Housing Summit in 2018 was an important milestone along the way. The coalition is to present a package of measures by the end of August 2019.