Gimme shelter

Germany aims to ease housing crisis, but measures may fall short

Cranes at building construction site, Berlin, Germany
"Schaffe, schaffe, Häusle baue" more important than ever. Source: Getty

The German government is debating a package of measures to ease the country’s housing shortages, but there are questions about how effective they will be. Proposals such as tightening rent controls, subsidizing home buying for families and perhaps even keeping foreigners from buying real estate all have their problems.

Berlin wants to promote construction of 1.5 million new residences over the four years of the current government’s mandate, but critics question whether this is possible at all, let alone with the planned measures.

Everyone agrees, however, that the issue is pressing. “The lack of affordable housing is one of the most urgent problems for citizens,” Volker Kauder, parliamentary leader for Chancellor Angela Merkel’s conservative alliance, told Handelsblatt.

The head of the German renters’ alliance, Ulrich Ropertz, said, “A million homes are needed in Germany and rents are increasing faster and faster.” It is “the social issue of our time,” he said.

Family subsidy for home-buying

The government is pinning its hopes on a new family housing subsidy that will come into effect this fall, retroactive to the beginning of the year. Parents whose taxable income does not exceed €75,000 annually, plus an allowance of €15,000 for each child, will qualify for government payments on the purchase of their first home. They will receive €1,200 a year for each child for 10 years.

This so-called “Baukindergeld” was pushed through in the coalition pact by the Bavarian wing of Ms. Merkel’s Christian Democrats, the CSU. Social Democrats and Free Democrats argued in favor of a tax-free amount for Germany’s onerous real estate transfer tax, which can reach more than 6 percent of the purchase price in some states and is a disincentive to home purchases.

The family subsidy may equal the transfer tax amount over the 10 years, but critics fear it will only promote home-buying in rural areas, because it doesn’t provide enough aid in expensive metropolitan areas. This would do little to solve the problem because there are plenty of empty houses in rural areas and the shortage is in the cities.

d German real estate property prices rents and price index of residential properties

Property taxes themselves are relatively low in Germany. One potential measure would be to introduce a higher tax for undeveloped property, to encourage speculators to either develop it or sell it. In the meantime, Germany’s highest court has declared the current property tax unconstitutional because the valuations for calculating the tax are too old. The replacement proposal is likely to increase the taxes.

Rent controls remain controversial because they are easy to get around and don’t seem effective. The advisory council at the economics ministry last week recommended they be abandoned. But Justice Minister Katarina Barley not only wants to keep them, but toughen them by requiring landlords to disclose the previous rent to new renters without being asked. Currently, landlords can claim the previous rent was higher than the regional average, and raise it by the permitted 10 percent on that basis.

Homebuilders have lobbied against rent control, arguing that it discourages new construction because it limits rent increases. Landlords can set the rent on a new apartment at whatever the market will bear, but then it comes under the rent control law for subsequent rentals.

Shifting brokerage fees

Other measures being debated include the so-called “bestseller principle,” which has whoever engages the broker pay them, instead of the current practice in most states of splitting the fee between buyer and seller. Brokerage fees, which range from 5.95 to 7.14 percent of the purchase price, are negotiable, but buyers in tight markets don’t want to jeopardize their chances of getting a desirable property by haggling over the fee. Switching to this method, experts believe, would shift the burden to sellers, who are able to pass on the cost to buyers in the prices they charge.

A more desperate measure would be to block foreigners from buying property in Germany, as Berlin’s mayor Michael Müller suggested this week. This violates EU law safeguarding free capital movements, but the precedent set by Denmark shows that exceptions can be written into the EU treaties.

In an op-ed for Handelsblatt on Thursday, Mr. Müller mentioned a few more ideas for solving Germany’s housing shortage. They would further restrict a landlord’s ability to set rent levels and limit the options for private companies to buy plots of land. In theory, these proposals could reduce the pace of rent hikes, but they might actually lead to an increase of housing prices, because the measures could limit the supply of construction plots and houses for sale.

Michael Voigtländer, an economist at the employer-funded German Economic Institute in Cologne, said the scarcity of land is one of the two problems the federal government cannot solve, because it is a matter of German states and municipalities. The second problem, Mr. Voigtländer said, is a capacity problem: the limited supply of builders, construction workers and engineers to build houses.

If supply really is the bottleneck, affordable housing will remain hard to achieve in the short run, no matter which regulations come into force.

Several Handelsblatt reporters contributed to this article. Handelsblatt Global editor Darrell Delamaide adapted it into English. To contact the author: d.delamaide@extern.handelsblatt.com

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