Germany's high-priced housing market

Housing shortages directly affect rent pricing, and in Germany rents have gotten very expensive. The average German household spends €859 ($1,010) each month on housing, energy and maintenance — more than one-third of their monthly income. Those living alone have to pay over 40 percent of their monthly income on rent and related costs.

Speaking ahead of Friday's so-called Housing Summit in Berlin, Germany's conservative chancellor, Angela Merkel, reaffirmed the government's commitment to build 1.5 million housing units within the current legislative period. "We desperately need more housing in Germany," she said. Andrea Nahles, head of Merkel's center-left Social Democrat coalition partners, went so far as to call the situation a "new social issue."

One of the government's ideas for jump-starting the housing market is to offer tax incentives to investors. According to the plan, private investors would be able to write-off up to 5 percent of the acquisition and construction costs of new apartment buildings. Coupled with existing annual write-offs of 2 percent, that adds up to some 28 percent in the first four years. The write-offs, however, would only apply to apartments that are let for 10 years. The new law has no provisions for a rent cap.

Support to run until 2022

Funding for such planning and construction is currently scheduled to be available between September 2018 and the end of 2021. Funding will not apply to luxury or vacation apartments: Tax incentives will only be available to investors building for less than €3,000 per square meter (11 square feet).

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"The idea is fundamentally correct," says Kai Warnecke, president of Germany's Haus & Grund homeowners association, the largest such organization representing the interests of real estate and home owners in the country. "We would also be happy if the funding went not only toward new building outside of the cities but to projects like loft conversions and rooftop apartments — in order to meet housing demand in the cities."

Warnecke added that in his opinion the €3,000 per square meter limit is too low. He noted that Germany's building codes and rising wages in the construction sector make it practically impossible to build new housing for that little in the country's cities – "not even the most simple apartments," he told DW.

Ulrich Ropertz, director of the German Tenants' Association, is also in favor of the idea of tax incentivizing new construction. Nevertheless, Ropertz added: "When tax incentives are not contingent upon investors giving back something in return — namely accepting rent caps — they will always squeeze out the highest price they can on the open market." He says this would lead to a flood of expensive housing units but none in the middle and lower price segment. "In the end, that will just mean more profits for those who are building."

Building costs on the rise

Yet, such profits have been sinking over the last several years. And as the German Realtors' Association's so-called affordability index shows, it has become increasingly difficult to pay for property. The reason can be directly linked to steadily rising market prices as well as rising mortgage rates. That makes purchasing an apartment in order to rent it less attractive. The Social Democrats' suggestion of tying rent to inflation rates has caused further consternation among investors. "Eighty percent of Germany's housing market is in private hands," says Warnecke. "We are talking about private individuals with single units. These are the people providing housing in Germany."

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He says if the government wants to expedite construction it should relax building regulations. He points to loft conversions and rooftop apartments as an example. "Such projects are subject to much higher fire safety codes than other apartments not because they are more prone to fire but because fire department ladders are too short," explains Warnecke, adding that by outfitting fire trucks with longer ladders fire codes could be relaxed and building costs would go down.

Public housing availability shrinking for decades

Yet, rooftop apartments alone will not end Germany's housing shortage. The German Tenants' Association is looking at the bigger picture: "Affordable housing is the result of more public housing construction," says Ropertz. He also provided numbers to back his claim. Last year 26,000 new public housing units came onto the market. "That is a ridiculously low number when you consider the fact that at the same time rent control expired for some 50,000 to 60,000 public housing units," he says.

That means that the total number of available public housing units in Germany is shrinking — and it has been doing so for the last 20 years. In all, Germany has 1.25 million public housing units. "It is clear that a lot more has to happen here. And so far the government has failed to recognize that fact," says Ropertz.

The German Tenants' Association's claims are also backed by a recent study conducted by sociologists from Berlin's Humboldt University. They found that rent caps, public housing construction and housing subsidies "did very little" to alleviate the problem of housing shortages in the country's major cities. They concluded that this was because far too little money was being invested in effective public housing projects.

The study found that if investment remained at today's levels it would take roughly 185 years to meet current demand for affordable housing in Germany's 10 largest cities. Currently, the government invests about €2 billion in public housing projects each year. It also spends that same amount on housing subsidies, as well as covering €15 billion in rent for social welfare recipients. Andrej Holm, one of the authors of the report, voiced criticism over the fact that much of that money ends up in the hands of large commercial landlords. He says one could describe the scheme as an "economic stimulus package" for property owning landlords.

Warnecke sees things differently. "We don't want people to lose their apartments and have to move if they fall on hard times," he says. Therefore, he believes the right approach is to make more housing subsidies available. That would allow people to stay in familiar surroundings while they look for new employment.