HOUSING CRUNCH

Apartment Shortage Grips Germany

Baustelle für Wohnhochhäuser in München, 2015
A Munich housing development in progress.
  • Why it matters

    Why it matters

    In big cities and smaller university towns, rents have risen dramatically in recent years because there are not enough apartments. And Germany’s refugee influx has only compounded the problem.

  • Facts

    Facts

    • A total of 182,800 residential permits were issued in the first six months of 2016, including 154,500 for apartments, according to the BFW real estate association’s website.
    • The number of completed dwellings in 2015 increased by only 1 percent compared to the previous year.
    • That amounted to 248,000 apartments, which is far below the 400,000 new units that experts say are needed annually.
  • Audio

    Audio

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In the first six months of the year, more building permits were issued for apartments in Germany than since the turn of the millennium. The Federal Statistical Office reported that 182,800 permits were issued through June, up a third on a year ago.

But licenses don’t equal instant structures, say experts – meaning that living space will remain scarce and expensive in Germany.

The rise in building permits will not reduce the shortage of apartments in urban areas, said the BFW real estate association.

“If all authorized buildings were constructed immediately, it would still take two to three years until they were completed.”

Reiner Braun,, head of Empirica real estate consultants

In big cities like Berlin, Munich and Hamburg — and also in many smaller university towns — rents have risen dramatically in recent years because there are not enough apartments. High costs are driving many people out of areas where they have lived for years.

The housing crunch is compounded by more than 1 million refugees who arrived in Germany last year. Many will remain, and they too will need affordable housing.

Despite the recent increase in apartment building permits, Axel Gedaschko, president of the GdW federation of German real estate associations, said it “is still not enough to cover the yearly need for 400,000 new apartments — particularly in growing, already densely populated areas.”

Reiner Braun, head of Empirica real estate consultants, also sees a problem. “If all authorized buildings were constructed immediately, it would still take two to three years until they were completed,” he said.

During that time, living space will become even scarcer — and the industry is quick to blame government policies at every level.

Mr. Gedaschko, the GdW real estate lobbyist, cited rising property transfer taxes and high requirements regarding energy efficiency.

He also criticized governments’ goal of expanding rent control and reducing modernization assessments.

Individual states are responsible for increases in real estate transfer taxes, he said – for example, to 6.5 percent in Schleswig-Holstein, the northernmost German state.

And the federal government is preparing legislation specifying that the upper limits for rents should be based on the last eight years instead of the last four, as they been up to now. The effect would be to lower the rent index, which forms the basis for calculating rental limits.

A particular danger to financial stability is posed by the combination of rising real estate prices, excessive awarding of loans and sinking standards for issuing credit.

With regard to tenants’ share in the costs of modernization, it is currently being debated whether landlords should be allowed to add only 8 percent instead of the current 11 percent of modernization costs into annual rents.

Ulrich Jacke, managing shareholder of Frankfurt-based real estate consultants Dr. Lübke & Kelber, also criticized bureaucratic processes for slow permitting at the municipal level.

“We assume that the number of building permits could once again be significantly improved and the apartment shortage more quickly resolved, if land were more rapidly approved for construction and building authorization procedures were handled faster,” he said.

Although living space is scarce, the federal government is putting the brakes on private individuals who want to build or buy. The reason: The government fears a rapid rise in prices due to the shortage could lead to a real estate bubble.

For months now, the Finance Ministry has been working out the legal basis for recommendations by the Committee for Financial Stability. The financial monitors call for more effective instruments to intervene in the case a housing bubble, in which prices hit unsustainable levels beyond actual value.

“A particular danger to financial stability is posed by the combination of rising real estate prices, excessive awarding of loans and sinking standards for issuing credit,” said the report on financial stability.

If necessary, financial monitors want to be able to increase the requirements for real estate loans.

But there is still disagreement over how extensively data should be gathered into a register. It is also unclear whether banks should report individual or aggregate data concerning private home loans.

The government on Tuesday said it would change the building code to enable construction on lots where approval would otherwise take longer under current legislation. This would be one step towards allowing higher density of building with lower noise regulations, both steps which would allow more building in city centers where people are keen to live. The draft law could be passed by the end of the year but was criticized by some as half-hearted. “But the initiative’s goal is good,” said Olaf Otting, who is responsible for building law at Allen & Overy, a law firm. “Housing is needed especially in urban areas.”

Critics said they hoped that the law would be adjusted in a suitably flexible manner so that the right balance of permits for residential and commercial buildings could be issued.

Real estate companies also called on politicians to modernize noise regulations, bringing levels permitted for commercial properties up to the traffic noise allowed, though environmentalists opposed these calls, and said standards should be protected and noise allowed for traffic would be too high.

 

Handelsblatt’s Frank Drost writes about financial supervision and banks. Reiner Reichel covers real estate for Handelsblatt. Matthias Streit is a business journalism trainee. To contact the authors: drost@handelsblatt.comreichel@handelsblatt.com,  m.streit@vhb.de

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