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25 07 2019

No Relief for the Housing Market

Nearly a year and a half after it was formed, the incumbent German Government presented its first housing benefit and rent report – and thereby documented how ineffective the housing policy of recent years has been. The situation on the German housing market was “clearly strained in the economically strong regions during the reporting period,” the report says. The reporting period extends from 2016 through 2018, as the Federal Government publishes its housing benefits and rent report every 2 years.1

Asking rents in the metropolitan core areas rose by an annual six percent between 2016 and 2018, whereas the average rent growth nationwide equalled five percent during the same period. New-build rents climbed to 12.68 euros per square metre in cities with populations of more than 500,000 residents, and even existing flats with good amenities were quoted for 11.46 euros when re-let.
 

“Massive Demand Backlog” in the Metro Regions

As a result, the housing cost burden of tenants now averages 29 percent of the household income – this, to be clear, being the average across Germany, not just for the metropolises. Especially hard hit are low-income earners. Households whose income is below 1,300 euros per month have rent burdens as high as 46 percent, meaning that these households spend nearly half of their income on accommodation. Higher earners with incomes of more than 4,500 euros per month only have an average rent burden of 17 percent.

The report cites a “massive demand backlog” as the reason for the rise in rents and the high rent burden for average households, especially in the metro regions. Accordingly, it is clear that the housing shortage is responsible for the high housing costs and that the strained housing market situation ought to be countered with a fast expansion of the supply side. But while the report does talk about the coalition government’s ambitious goal of creating 1.5 million new flats by 2021, there is no mention of the fact that it is well behind schedule to reach this objective.
 

A Poor Scorecard

The report does mention that 285,000 flats were completed in Germany in 2018 and thus 90 percent more than in 2009. But you will hunt in vain for a note that the average annual target is actually 375,000 completed flats and that this mark was clearly missed – and will probably be missed again by a wide margin in 2019.

As the Immobilien Zeitung real estate trade paper writes, the Federal Government practically issued “a poor scorecard for the housing policy” to itself.2 Admittedly, the report does highlight the fact that the housing situation in Germany has not changed lately – the markets remain as strained as they have been over the past years, and housing construction is lagging far behind demand. But that the German housing policy, which concentrates on regulating landlord-tenant law more than on anything else, will make adjustments in response to the poor scorecard is rather doubtful.

1 www.bmi.bund.de/SharedDocs/downloads/DE/publikationen/themen/bauen/wohnen/Wohngeld-und-Mietenbericht-2018.pdf
2 www.immobilien-zeitung.de/152040/bundesregierung-erteilt-sich-schlechtes-zeugnis-fuer-wohnpolitik