What measures to take to curb the runaway rents and prices in Germany’s major cities has been subject to political debate for some time now. In its latest expert opinion, the IW German Economic Institute in Cologne examined the strategies applied so far in terms of their effectiveness, and unambiguously concluded: They are without exception far too ineffective.1 In particular, the IW Economic Institute took a hard look at the so-called rent freeze and social housing subsidy programs. According to the expert opinion, both measures failed to bring relief for the strained situation on the housing market.
Social Housing Development Lacks Pinpoint Accuracy
The expert opinion cites several surveys which suggest “that the rent freeze has only had a moderate impact on rent growth.” It goes on to say that experiences made with rent control measures in other countries have demonstrated the ineffectiveness of such measures. In regard to social housing subsidies, the IW Economic Institute criticises specifically the programs’ lack in pinpoint accuracy. Only 45 percent of social housing tenants are threatened by poverty, and this even though there are seven million households at risk of poverty in Germany, matched by only one million to 1.5 million social housing units. Accordingly, the IW Economic Institute does not consider social housing development an effective solution for a strained housing market.
Potential for Further Densification Barely Exploited
At the same time, the experts presented four alternative strategies toward a more effective housing policy. One component is a more effective use of the existing housing stock, for instance through further densification. Estimates suggest that an additional 1.1 million flats could be created in strained housing market by topping up buildings, which would suffice to address the current housing shortage. Despite this enormous potential, further densification is making barely any progress in Germany. During the first six months of 2017, the number of flats approved in the form of restructuring measures actually declined by 22 percent over prior-year period.2
Growing and Shrinking Cities often in Close Proximity to One Another
Another suggestion made by the IW Economic Institute is the indexation and increase of housing benefits for tenants because these are much more effective in helping those who need it than social housing subsidies are. The experts also propose to expand municipal programs in order to acquire rights to nominate tenants and thereby gain active control of tenancy selection. The right to nominate tenants could be employed to provide pinpoint assistance to households that have a hard time getting a lease. Finally, the expert opinion points out that growing and shrinking cities often lie on close proximity to one another. Improving the transport links between them could therefore open up sensible fall-back options for cities with strained housing markets.