Construction industry in distress: “We will have to get used to much higher rents”

The bad news from the construction industry continues. Large property developers are going bankrupt, others are putting projects with tens of thousands of apartments on hold. Given the housing crisis invites the Federal Government am Monday to the construction summit. The nerves are already on edge in advance. The two associations GdW and Haus&Grund cancel their participation in protest. The reproach: Chancellor Olaf Scholz reacts not appropriate to the current crisis. Project developer Ingo Weiss expects the summit participants to provide a “roadmap” on how things should proceed. He says: “Rents will probably never go down again.” speaks to the entrepreneur high costs, demands and ways out of the crisis. The construction of new apartments is collapsing spectacularly. Expectations for the housing summit on Monday are high. Two important business associations are boycotting the meeting. Can we still hope for solutions?

Ingo Weiss: I remain optimistic. For sustainability and cost reasons, we finally have to take new paths when building new buildings. The climate issue, the interest rate environment and the many taxes make building housing far too expensive. I expect a plan on how to make this country fit for the future. Everyone must contribute something to this: politicians must present financial programs, the construction industry must become more innovative – we have always been building the same way for 80 years – and society has to lower its demands.

The price per square meter is now 5,000 euros. Large property owners, i.e. companies that own and rent out thousands of apartments, calculate with a net rent of 17 euros or more per square meter to make it worthwhile. How do you come up with such a price?

In an example calculation with only 800 euros in land costs per square meter, we even get more than 5000 euros. Including almost ten percent of additional acquisition costs – i.e. taxes, costs for notary and purchase inspection – we come to almost 900 euros per square meter. Including development costs of around 2,800 euros per square meter of living space plus 19 percent VAT, we come to 3,300 euros. Plus the costs for construction time and interest, you will already have investment costs of 5,000 euros by the time the property is handed over. The project developer has not yet made any profit.

What else is being added?

A moderate profit for the risk he takes is 15 to 20 percent. Assume 15 percent and you are at a sales price of 5700 euros. And that’s not the end: When selling to an investor, property transfer tax, notary and inspection costs are incurred again. So the 5700 quickly becomes 6200 euros.

What net rent does that result in?

If you add the interest costs for financing, you come to 25 euros, which you need so that your invested capital earns interest at 4.5 percent. Fixed-term deposits at the bank now earn interest at four percent. Why should anyone take the risks at that price? This is the reason why the market no longer works.

It has long been said that 30 percent of net household income for housing is appropriate. Is that history?

It has to be said that this no longer works in large German cities. The proportion is also much higher in other European cities. We will have to get used to much higher rents. At least I think that’s partly true. If you want to have a high standard, it comes at a price. At the same time, you should also use the adjustment screws that exist to bring prices down. They will also be discussed on Monday.

In your opinion, what adjustments should politicians make in order to create more affordable housing quickly and effectively?

16 federal states have a total of 17 building regulations including model regulations. This has to be easier. A percentage of new buildings must be age-appropriate. This is similar to the disabled parking spaces, which are mostly free. You risk vacancy. Instead of shooting with a gun, you shoot with a shotgun. The same rule everywhere makes no sense. We should focus more on needs. Construction must also become more serial. To achieve this, development times and approval procedures must be shortened. Nothing in administration has been digitized yet.

They say we also have to lower our standards. Why?

In Germany we have very large apartments per capita and family. Maybe we need to think about smaller four-room apartments, not 180, but 100 square meters, with little additional space. There are good concepts for this.

They advocate lower taxes. Abolition of the real estate transfer tax, reduction of VAT from 19 to 7 percent…

… maybe even completely zero. The topic of taxes is always quickly pushed aside by politicians. But it would be the fastest and most effective lever.

Is zero realistic?

In a comparison calculation with the same property costs, we set the property transfer tax to zero, the VAT to seven percent and the development time by half a year to two and a half years. We have incorporated a KfW program for this purpose. The bottom line is that you end up with a rent of exactly 17 euros and no longer 25 euros. Lowering tax rates would be easy. Even if it was only for a limited time, it would help supply the market with as many homes as it needs.

This would only have stabilized the rents…

Rents will probably never go down again. An oversupply is needed just for them to stabilize.

There have been cheap loans from KfW since June, but these are hardly being taken up. Why?

Always new programs. Why not adapt an old one? The program is now called KFN, climate-friendly new buildings. For the highest funding level – which is a climate-friendly new building with a seal of quality for sustainable construction – you need a specific certificate. The problem: You can hardly find any certifiers. Without it, the program cannot be accessed. People could train to become certifiers, but don’t do it. Why? Because they don’t know whether the program will still exist in six months. There is just too much uncertainty in this market.

Federal, state and local governments could sell their properties more cheaply. Wouldn’t that be a useful contribution given the housing shortage?

Ingo Weiss is a real estate economist and entrepreneur. He is one of the three founders of the project developer Driven Investment.

(Photo: Ingo Weiss)

That would be an option. The Federal Railway Assets have a large property portfolio. Even a city like Berlin still has a lot of undeveloped land. There is property tax C for undeveloped land. If this is increased, holding such properties becomes less economical. You could also build higher. This reduces the costs per living space. There are too few high-rise buildings in Germany.

Office space is now empty in many of them. Why aren’t they systematically converted into apartments?

This is a kamikaze command because you have to change the building law to do it. Commercial is on the development plan. We know how long it takes to create development plans, especially in Berlin. In addition, there are also highly technical requirements.

And what speaks against repairing more vacant properties?

Attention, empty properties also include second homes! Many people have two or three apartments in Germany. Maybe we should ask ourselves whether this is still relevant? I think it makes sense to make this less attractive through taxes. Otherwise, there are actually KfW programs for renovations – roofs, insulation or new windows. However, the decision to invest is made by the homeowners. Often you can’t make any money this way.

Climate protection measures, you say, is a problem for the industry in this country. To what extent does Germany differ from other comparable countries?

In Germany everything has become far too complicated. Why is our standard for energy class A higher than that in the Netherlands? When I studied civil engineering, we expected five to eight centimeters of insulation, now we are at 17 and 18. If you look at the living standards in London, Amsterdam, Paris or Brussels – these are not distant cultures that live completely differently. – then people live very well there.

Diana Dittmer spoke to Ingo Weiss

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