Housing Crisis in Germany: Reasons and Backgrounds

Housing Crisis in Germany: Reasons and Backgrounds

Posted by siamndossi | 12.04.2019
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Housing Crisis in Germany: personal opinion about the Reasons and Backgrounds

The Inflation in real estate prices (whether buying or renting) has become –unfortunately– a global issue, which exists as a recent phenomenon in a large number of countries around the world. In a large number of mega cities, housing has become a real dream! (New York, London, Hong Kong etc.)

Facts and indicators regarding the situation in Germany:

The fear to real estate investment has not been overcoming, yet.

In Asia for instance, the investment model “property buying to invest rather than to use” is largely spread. These models of “investing” are almost a non-existent case in Germany. Despite their ability of buying a property – thanks to the low interest rate– and even paying back their bank-installments over an extensive period (which is btw almost equal to their rent). This is linked to the Germans’ fear of loans and also to the absence of the concept of “investment for my children”.

The government supported the above-mentioned approach and protected the tenants (laws that protect the tenant from expulsion, house repairs and other details). It also supported a large number of “residential / housing associations” Genossenschaften. Which they do not aim to “win” rather to collect and keep their financial gain in a closed-end fund (exempt from taxes). Provided that the amount is invested in future in new real estate projects.

In all the countries of the world there is corruption –in different degrees and shapes–, of course Germany is no exception! Nevertheless, what has happened (and is happening) in the above-mentioned associations is that they are becoming bureaucratic facilities, even more bureaucratic than the German official bodies. In other words, getting a suitable and price-reasonable accommodation means waiting for very long period of time. Another important aspect to consider here, is the ongoing privatization of many housing associations.

The Asian model of property “investment” is almost a non-existent case in Germany

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The German laws that support personal housing projects (not the commercial ones), whether in shape of tax support / exemptions or financial loans and funding programs for private persons. The laws themselves have prevented bubbles and real estate sudden booms and have had a number of positive aspects. However, these laws have turned into a major bureaucratic obstacle that makes any construction process to be extreme time-consuming, complex and expensive.

The recent negative trend in German large cities is “luxury real estate: Luxusimmobilien“. Real estate tends to be a commodities / goods rather than being a “right” or a problem solution. Consequently, the daily reflected examples in media speech: “The X party wants to support: social housing Sozialwohnungen / Apartments for low income Wohnungen für Geringverdiener etc.” Again, many crises / problems in Germany are becoming a political issue and is being used as sufficient leverage through the parties.

German economy is always considered a solid and stable economy, due to its industrial structure along with many other factors. On the other hand, since this economy depends on a network of related industries and services –which sell its final product in a global market and under a brutal competition–; that leads to make any price inflation to be reflected on the competitiveness of the German product as a whole. Inflation in Germany over the recent years is –at least in my personal opinion– a dangerous indicator!

Eventually, beside the “darkness” / the “tough reality” in this article, there’re some reasons for optimism. One of these reasons is that Germany is currently in a slight construction boom Bauboom period. Of course, this so-called “boom” is not that strong as the one in China for instance (i.e. mega entire cities would not be being built at once here in Germany!). Yet, the current period is witnessing an intensity of construction projects (especially residential projects). Unfortunately, this movement hasn’t reflected yet as a “major” salary improvement for engineers those involved in the construction, still, this remains issue / topic to focus on in my upcoming blogs.

Strength Points of The German Construction Sector in a Nutshell:

 

  • Avoid real estate bubbles through building only as needed and as necessary. (Such bubbles were the case of deep economic crises in Spain and Ireland, also the big collapse due to mortgage crisis in the US 2018).
  • Quality needs time; along with many other factors (e.g. safety, rights of workers, environmental protection… etc.), these are in Germany more significant than a short building time! This rule applies also in all project phases: concepting, designing, or implementing.
  • Complex legislation ensures transparency (no tax evasions, insure that no real estate areas are being manipulation, insure a correct and total imply of urban development plan).
  • Laws with legislations and their bureaucracy also ensure preoccupation of large number of employees in reviewing, verifying and other paper works! In a long run, they also guarantee the local use of German construction materials.
  • Building codes in Germany encourage respect for the environment (e.g. through funding like KfW loan). The principle of maintaining, restoration, and renovation is more significant than demolition and total new construction (a good example is how architecture in east Germany GDR –such as WBS 70– has been treated after the reunification).
  • Cons of the German legislation and laws regarding the real estate market is that they caused a national housing crisis, and they make finding an accommodation in Germany such a difficult mission! Other cons of the complexity in the whole system is the “common” delay of mega projects due to funding and political problems! Completion or postponement of these projects is being used –through many parties– as an electoral leverage again. In other words, these delay problems are mainly because of funding, legislation or funding issues, and “usually” not because of engineering failure!

Cover photo details
Designing competition from H2B Architekten for the Neubrandenburg Housing Association Neuwoges.
Concept, architectural designing, and 3D-rendering by Siamnd Ossi
Neubrandenburg, Germany
2018

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