A huge affordable housing
crisis has led to increased rent and land prices in Germany. Inadequate
construction, lack of social housing units, and rising number of immigrants in
the country are increasing housing prices even more. Can effective measures from
the government help to curb the affordable housing crisis in Germany?
Living in Germany is becoming more and more expensive as the
country is facing a severe shortage of affordable housing. According to a
recent analysis, rents in 12 out of 13 Berlin districts are more than 30% of
the average net income of the Germans. The housing prices and rents have
started to increase substantially since 2012 as the housing supply is unable to
keep up with the demand in some parts of the country. While new construction
has taken place in the upper end of the market, not many developments have been
made in the compact and affordable
apartments, which has created a significant gap between demand and supply
chain. The rising housing prices show no signs of slowing down even after the
economic crisis brought upon by the coronavirus. The prices for existing
apartments in Germany have spiked up to 10% while the prices of new apartments increased
by 7% in 2020.
Germany: A Nation of Renters
Around 54% of Germany’s households rent their homes, and renting
has become more common in the cites like Berlin and Hamburg. So, the
prices are significantly higher in these cities than in others like
Rhineland-Palatinate or Saarland. Government subsidies provided to the renters
coupled with strong federal
renter protection are increasing the renter
ratio in the country. Almost 90% of rental units include multifamily buildings,
apartment blocks, and row houses, mostly occupied by single-person households and
single-parent households. 85% of the renters are between the age group of 25-34
years, while slightly more than half of the renters are above the 75 years age
group. The young age population tends to remain longer in rental accommodations
due to the high costs of buying homes.
Even after taking up the homeownership, buyers are incentivized
to rent out their place rather than occupying the homes. The buyers get the
advantage of the reduction in their mortgage rates when they rent out their
house. Besides, the high cost of housing makes moving in very costly for the owners. More
than half of the private landlords are non-professional owners, whereas public
entities or privately-owned housing companies account for less than one-quarter
of rental dwellings.
Fewer Construction, Rising Housing Demand
Germany is lacking around 670,000 apartments, especially in
metropolitan areas and growth
regions, and nearly 43,000 social housing units get occupied every year, which
is creating a grave shortage of new housing for renters.
According to the Federal Statistical Office of Germany, demand for housing
continues to expand with population growth, good labor market situation, and
migration of immigrants, which is estimated
to be between 110,000 to 300,000 by 2030. Municipalities are
responsible for earmarking land for construction and issuing building permits
in Germany, but the gap between the number of building permits and completions
is ever-expanding. Shortage of skilled construction workers, high land prices,
and complexity of building codes are widening the demand and supply gap, thus
contributing to the severe shortage of houses in the country. Besides, scarce
land building in metropolitan cities, long-term building permits, and
multi-year construction projects are some of the factors responsible for
relatively low house market supply while the demand continues to increase
substantially.
Huge Waiting List for Social Units
Households willing to live in social housing units need to apply
for a certificate of eligibility, which generally takes into consideration the
household income. Only those who receive this certificate are eligible for a
social housing unit, but there are endless waiting lists. Those with special
needs or already receiving social benefits can apply for the certificate.
Besides, renter households that do not receive any transfers related to housing
assistance are eligible for the certificate, but the rental price can vary
depending upon the household size, total income, and housing cost.
Implications to Solve the
Hardly Elastic Housing Supply Problem in Germany
Enhancing Accessibility to Building Land
Lack of building land is one of the significant factors
responsible for the housing supply problem. The shortage also reflects in the increased
price of building lands that grew by 50% within 2010-2019 across the country.
However, prices of building lands doubled from 2016 to 2021 in some of the largest German cities. The exhausted
inner-city building lands have created a need for the development of cities and
increasing mobility of the urban population to the
surrounding areas to create more living spaces. Besides, densification of
accommodations in German cities can help to generate space for about 2.3
million to 2.7 million apartments. The pre-requisite for population growth in
surrounding areas of the cities would require the development of public
infrastructure intended for general interest such as schools, kindergartens,
medical care, parking spaces, etc.
Delay in issuance of building permits due to
regulation-intensive and interest-driven approval procedures owing to lack of
human resources is exacerbating the housing supply-demand. Thus, mitigating the
scarcity of human resources that overlook design and practical implementation
of development plans as well as the designation of buildings could expedite the
issuance of building permits. Besides, reducing the transaction costs for the
acquisition of building land, eliminating interim buyers, and incorporating
lean procurement procedures can help in the success of infrastructural projects
at a rapid rate.
Rental Brake
Introduced in 2015, the rental brake intends to counter the
price trend on the rental apartments. The law restricts house owners to
increase the rent by more than 10% above the local comparative rent in new
rental contracts. Since the rent varies from region to region, rent brakes have
been established in the states or
municipalities rather than nationwide. After the
introduction of rental brakes, prices in metropolitan areas fell by 3% however,
rental prices continued to increase in unregulated markets. In Feb 2020, the
German government passed the extension of the national rent brake for another
five years to dampen the effect on overheated rental markets. Additionally, the
stringent rent brake allows the tenants to reclaim the excessive paid rent,
which could prevent them from exploitation of the homeowners.
Increasing Job opportunities in Urban Areas
Advanced tertiarization
in cities leads to an increasing number of
opportunities, which results in internal migration from rural to urban areas.
This leads to the elevating demand for housing in metropolitan cities, and that
contributes to their rising prices. The good situation of the labor market for
years with a high level of employment and expansion of universities in the
region have resulted in increased demand for housing. Mostly, low-income groups
make the migration to towns however, they are unable to find accommodation due
to hefty rental prices. Increasing job density in rural and suburban areas with
the expansion of public infrastructure can help to reduce the extent of
internal migration, which could significantly create less demand for houses in
overburdened cities. With the increasing penetration of broadband in rural
areas, rising work-from-home culture, and reduced housing costs, more people
are preferring the countryside over cities. The shifting trend could largely
influence the pricing in the coming years.
State Interventions to Solve the Housing Problem
Social housing unit developers require to rent out their accommodations
at below-market rates for 15-20 years, for which they are subsidized and
granted interest-free loans. However, fewer unit developers are willing to construct
social housing units due to less rent and extended commitment period, which is
putting stress on the low-income households. The government has earmarked a sum
of USD1 billion from 2020 to 2024, in an effort to drive the construction of
social housing. However, the granted sum is 30% less than what was provided in
previous years.
German Civil Code renders
protection to renters, ensuring stability and security to them. The landlords
are responsible to commensurate for reasonable wear and tear in housing units,
which eliminates the additional burden for the dwellers. If the landlords do
not rectify the deficiencies in the units, the renters can achieve rent reduction. Also, the homeowners
cannot raise the rent arbitrarily however, they can pass certain costs and
property taxes on to the renter. In Germany, the leases are typically
open-ended rather than on yearly basis and both parties require to provide a
notice period of three months to terminate a lease. However, evictions can be enforced if the renter fails to pay
rent for at least two months, but prior warnings are compulsory.
Many people lost their jobs due to the economic disruptions
caused by the COVID-19 pandemic. The government has planned to provide housing
assistance to people who are unable to make the ends meet. The government has
put a ban on the evictions for renters who had failed to pay their rents
between April and June 2020, resulting from employment losses.
Conclusion
The COVID-19 pandemic led to job losses and shutting down of
businesses, which resulted in vacant commercial premises, industrial halls,
hotels, and buildings, which are now being
utilized to create accommodations. Besides, due to the rising trend
of work from home, many vacant office buildings are being converted into
residential spaces to fulfill the burgeoning demand. According to the Alliance
for Social Housing, some 235,000 new apartments are expected to be created in
offices and administrative buildings. With the increased regulatory framework
in the areas of energy efficiency in the construction segment, the
developmental costs of buildings have risen exponentially, thus restricting the
growth of new buildings. However, temporary suspension or even abolition of
these frameworks are not easy to revise or adjust as they could lead to
conflicting goals.
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