Housing market pressure set to escalate once more
The Housing Market Expectations for Germany: Further Pressure on Already Tight Market
In an interview with ntv.de, economist Michael Voigtländer, a real estate expert from the Institute of the German Economy, discusses the state of the housing market in Germany and the new Minister of Housing's approach to addressing the issue.
Voigtländer points out that the tension in the housing market has been high for years, with construction activity decreasing further as a result of interest rate increases in 2022. Last year, only 250,000 apartments were built, falling far short of the required 350,000 to 370,000. This year, the estimate is 230,000, and next year, it's predicted to be around 200,000. These numbers build significant pressure in the housing market, with new contract rents increasing by approximately five percent per year, and many people finding it challenging to find suitable rental apartments.
The economist suggests that this predicament is unfortunate for the new Minister of Housing, as she inherits these unfavorable numbers. Previous governments have always emphasized the significance of housing construction, despite the substantial decline in new construction. Voigtländer insists that implementation is the key issue, requiring collaboration from all levels of government to prioritize construction development.
One strategy proposed by the new Minister, known as the "construction accelerator," is meant to speed up the planning process for municipalities. This tactic was previously used during the refugee crisis in 2015, allowing for rapid accommodations. However, Voigtländer warns that its effectiveness is debatable and that municipalities must actively use this instrument for it to have an impact.
Criticisms of this approach include concerns about environmental impact, poor quality, and social conflict potential, as well as the real estate industry's complaint that many municipalities are not using their existing opportunities to designate building land and promote new construction. Many municipalities face challenges in allowing sufficient new construction or densification due to infrastructure limitations or funding shortages.
To address these issues, the federal government must invest in municipal infrastructure development and facilitate negotiations of interests between cities and surrounding municipalities. The federal Minister of Housing can also work on reducing construction costs and influencing construction industry regulations.
In the short term, the government could implement existing building permits and offer more favorable interest rates for construction loans to help stabilize the construction industry. Longer-term strategies may include fine-tuning rent control policies, increasing investment in public housing, boosting construction with policy incentives, and implementing urban planning reforms to make more efficient use of existing land.
By adopting these strategies, the German government can hope to alleviate the ongoing housing crisis, increase housing supply, and improve affordability in major cities like Berlin, Hamburg, and Munich. While it may take several years to see a notable change in the housing market, signs of progress can be expected in the near future.
EC countries might consider investing in vocational training programs to develop a skilled workforce capable of boosting construction activities, which is essential for addressing the housing crisis in countries like Germany. Personal-finance advice for first-time homebuyers could also be crucial, as they navigating the real estate market, especially in light of potential interest rate changes in the future.
