Building has become too expensive
Residential construction is in permanent crisis
08/06/2023 07:38 am
Building apartments has become so expensive in recent years that it is no longer worthwhile for companies. Experts suspect a trend that will probably continue in the years to come.
According to economists, experts and the construction industry, if the framework conditions are not fundamentally improved, housing construction in Germany will be in dire straits for years to come. The reason is that the rapid increase in construction costs is also making privately financed housing unprofitable for many property developers. In order to recover the costs, the square meter rent for a new apartment would have to be around 18 euros, estimates the Kiel working group for contemporary construction.
According to calculations by the Kiel working group, the nationwide median value for the construction of a square meter of living space – including land costs – was 5148 euros in the first quarter, currently estimated at around 5200 euros, as the architect Timo Gniechwitz, who works for the consortium, says. The working group is one of the leading building research institutions in Germany (Arge).
Even away from Munich or Frankfurt, the profitability threshold has reached a level that was scarcely imaginable just a few years ago. Three examples from Bavaria: according to calculations by local housing companies, the rent in Nuremberg is between EUR 16.50 and EUR 18.00 per square meter, in Forchheim in Upper Franconia it is EUR 18.30 and in Kempten in the Allgäu EUR 18.50.
“Building is simply too expensive,” comments Ludwig Dorffmeister, the construction and real estate specialist at the Munich Ifo Institute. “In May, construction prices for conventional new residential construction were 36 percent higher than in early summer 2020.”
Projects are shelved
Housing companies often put projects on hold “because the rent that would actually be required for this would overwhelm the future residents financially,” says Dorffmeister. At the same time, the federal government has severely restricted its new construction funding since 2022. “Despite the expected adjustment efforts of all those involved, I do not expect a trend reversal, but rather further severe market losses.”
The basis of German housing policy is a dichotomy: Social housing is subsidized by the state because the construction of cheap apartments has never been profitable. Privately financed housing construction, on the other hand, should be self-financing in terms of the market economy, even if the principle has been watered down by a large number of subsidy programs. But in the meantime, many privately financed housing projects are no longer worthwhile.
214,000 apartment expected for 2024
The Federal Association of Housing and Real Estate Companies (GdW) expects only 214,000 new apartments for 2024, the federal government’s target is 400,000. The Arge Kiel called for a master plan in the spring. “Without such a master plan, housing construction will exceed the ‘tipping point’ at the earliest opportunity,” the paper says. “It will then no longer be possible in the long term to adequately cover the need for housing in Germany, especially in the affordable housing segment.”
A glimmer of hope: “The companies are doing everything they can to keep their staff,” says Felix Pakleppa, general manager of the Central Association of the German Construction Industry (ZDB). “But we are aware that short-time work is increasing among housing construction companies.” The negative trend in building permits and incoming orders is a “dark omen”.
“Without adequate subsidy budgets and better building conditions such as a higher interest rate support, a lower VAT rate or a low real estate transfer tax, we will see a serious slump in the residential construction sector,” predicts Pakleppa. “With unforeseeable consequences for the employees in the industry, who we would be missing tomorrow for the upcoming construction tasks.” According to calculations by the Kiel consortium, the shell construction costs in Germany have doubled since the year 2000, and building land prices in particular have risen far above average. However, the costs prescribed by the state, i.e. compliance with the standards for technical expansion with heating, thermal insulation and so on, have also more than quadrupled.
Bad times for renters
“It’s getting tighter and tighter for tenants,” says Hans Maier, director of the Association of Bavarian Housing Companies (VdW) in Munich. The sharp decline in the construction of condominiums is contributing to rising rents. “Households that would have bought an apartment two years ago are now also looking for rental apartments.” Politicians have been warning for years that the lack of housing and rising rents are fuel for populists and extremists. The budget of Federal Building Minister Klara Geywitz is to increase to almost seven billion euros in 2024, and the SPD politician has also proposed better depreciation options for housing construction. But hardly anyone believes that this could be enough. “From our point of view, there is an annual subsidy requirement of 23 billion euros for housing construction,” says ZDB general manager Pakleppa.
“This applies to the creation of social and affordable housing up to a rent of 12.50 euros per square meter.” The German Tenants’ Association demanded 12.5 billion euros in 2022 for social housing alone. In every election period, housing alliances and summits meet again, largely without consequences. However, Arge Kiel does not want to give up hope: “First and foremost, everyone involved should always strive to minimize investment and construction costs in order to be able to create affordable living space,” says Gniechwitz.