Renewed strain on the real estate market looms on the horizon
Increased Pressure on Germany's Housing Market Foreseen amid Plans for Accelerated Construction
The new Minister of Housing, Verena Hubertz, unveiled ambitious plans to boost housing construction rapidly, including a "construction accelerator." In an interview with ntv.de, real estate expert and economist Michael Voigtländer from the Institute of the German Economy offered insights into the key factors shaping the success of the new government's housing policy and why initial levels of new construction might decline further.
ntv.de: With the housing market being a significant social issue for years, and new construction plummeting, how dire is the situation, and what starting point does the new Minister of Housing have?
Voigtländer: Tension within the housing market has been alarmingly high for years, even during the boom seasons. Despite favourable conditions, insufficient construction took place. In 2022, due to interest rate hikes, construction activity saw a further decrease. In 2021, just 250,000 apartments were built, compared to the required 350,000 to 370,000. For 2022, a decline to 230,000 apartments is projected, and 2023 will likely witness a fall to around 200,000. This creates significant pressure within the housing market. New rentals are increasing by approximately five percent year-on-year, and suitable rental properties are in short supply for many. The Minister of Housing faces the challenge of improving upon underwhelming figures.
ntv.de: Past administrations have consistently emphasized the essential importance of housing construction. Nevertheless, new construction has dwindled significantly. Is there reason to believe this government will differ?
We do not lack understanding of the issue, but implementation has been the key challenge. This topic transcends the federal government, involving state governments and municipalities. Collaboration is essential, with construction being prioritized across all levels of government. The coalition agreement presents a few promising points: standards will be reduced, and approval processes will be expedited. Whether the Minister of Housing can garner agreement from their peers at state and municipal levels remains to be seen.
ntv.de: The government has highlighted the "construction accelerator" as a means of stimulating new construction. Can it bring about a shift in direction?
The term "construction accelerator" is impressive but refers to streamlining municipal planning processes, drawing inspiration from the emergency measures used during the 2015 refugee crisis. Municipalities will be granted greater ability to designate building land swiftly, but it is ultimately up to municipalities to employ this strategy.
Critics argue that this would not necessarily promote sustainable and large-scale projects and that many municipalities are not actively designating building land or encouraging new construction. Some municipalities experience challenges due to overloaded infrastructure or lack of funds to construct new social facilities such as kindergartens and schools.
ntv.de: What can the federal government do about these obstacles?
The federal government must endeavor to assist municipalities in their development and infrastructure enhancements. The special fund would likely be suitable for this purpose. Improved negotiations of interests between cities and nearby municipalities are also necessary, and this is a task for the federal states. They could ensure a balanced interest, for instance, by offering the establishment of an authority or industrial area to a municipality providing living space relief to a nearby city.
ntv.de: In this complex distribution of responsibilities, what role does the Federal Minister of Housing play?
The Federal Minister of Housing wields considerable influence. For example, they can impact construction costs, considered a secondary key project besides the "construction accelerator." They also have the power to drive a unified attitude towards housing across all levels of government, which could give momentum to those willing to build in local debates.
ntv.de: In the short term, how can the federal government address the acute housing market crisis?
Swift actions to address structural reforms pertaining to construction costs and building land, as well as the employment of existing building permits, can help stabilize the construction industry. Additionally, the promotion of the efficiency standard EH55 in new construction — meaning more energy-efficient buildings — could hasten the implementation of existing permits. These immediate measures are crucial, as reduced construction company capacities now could make it even more challenging to speed up construction in the medium term.
ntv.de: How confident are you that the housing market crisis will not still be an issue at the end of this legislative period, similar to discussions we've been having for years?
Although construction completion figures will initially continue to decline substantially, it is difficult to envision a significantly relaxed housing market in major cities — such as Berlin, Hamburg, or Munich — within the next four years. The pressure on the housing market will likely continue to grow. However, in four years, it is possible that we will at least be charting a course towards improved housing construction, and easing of the housing market will be evident in outlying areas of major cities and certain other regions.
Max Borowski spoke with Michael Voigtländer
Sources: ntv.de
Vocational training programs in EC countries could play a crucial role in the construction industry, as skilled workers are essential for accelerated housing construction. Investing in vocational training programs would help address the labor shortage and improve construction output.
With the challenges faced by municipalities in financing infrastructure improvements and designating building land, financial support from the federal government is essential. Such aid could enable faster construction and alleviate the pressure on the housing market.
