Ukraine war, inflation accelerate Germany's housing crisis

The German government is going to miss the housing target it set itself when it came to power in 2021, it was forced to admit some days before. "I'm not expecting the number of 400,000 apartments to be reachable in the years 2022 and 2023," Klara Geywitz, minister for housing, urban development and building, told the news outlet web.de.

The scale of the challenge was underlined by another statistic revealed in the same week, which showed that the number of new apartments being approved for building is actually sinking: Some 24,304 apartments were approved in November 2022, 16% fewer than in the same month in 2021, Germany's Federal Statistical Office said.

With Germany's population now at its all-time high of 84.3 million, the decline in construction has inevitably led to a record-breaking shortfall of apartments. The country needs about 700,000 new ones to ease the pressure on the market, according to a study by the construction research institute, the Working Group for Contemporary Construction, or ARGE.

COVID, Ukraine war and inflation to blame

Why this is happening is clear enough: The COVID-19 pandemic had already caused bottlenecks in the deliveries of construction materials, which were then compounded by the war in Ukraine. Both Ukraine and Russia are among the biggest producers of construction steel and timber.

On top of that have come a lack of new land, rising interest rates, Germany's much-documented shortage of skilled labor and finally an influx of hundreds of thousands of refugees from Ukraine and elsewhere all now urgently looking for somewhere to live in Germany's cities.

All of this means the situation is much more dire than Geywitz is admitting, according to the Federal Association of German Housing and Real Estate Companies (GdW).

"We estimate there were around 280,000 apartment completions in 2022, but only around 240,000 in 2023 and only 214,000 in 2024," Axel Gedaschko, the association's head, told DW by email. In fact, he said, Germany is facing at least 10 years of housing shortages.

More single households

Apart from the overlapping crises currently worsening the situation, there are also underlying demographic factors. The number of single households in Germany is continually rising, while the German population is aging, meaning people are staying in their homes for longer.

Nevertheless, Gedaschko said the German government is a long way from addressing the problem properly. "The fact is, to date, the German government has done far too little to achieve its own housing target," he said. "The housing companies need a long-term housing construction policy with a reliable and adequate funding system."

Burgeoning bureaucracy

The other problem that construction companies are facing is what David Eberhart of the Berlin-Brandenburg housing association BBU calls a "briskly growing" accumulation of regulations.

Often, he said, different authorities demand the company carry out various assessments that then include conflicting building standards — noise protection and energy efficiency requirements, for example, sometimes require different insulation. It is, said Eberhart, a "wild thicket" of bureaucracy.

In fact, Germany does have empty buildings standing around — but they aren't in the right places. And if they are, they are too expensive. Eberhart said that, in order to make a profit from a newly built apartment, a developer needs to charge rent of €13 per month per square meter (around $14) . "Everything under that needs to be subsidized," he said. The current average rent in Germany is €8.30 per month per square meter.

The solution could be social housing — that is, rent-controlled buildings whose construction is subsidized by the state or which belong to local authorities. But these have been steadily declining, from over 2 million apartments the Federal Statistical Office counted in 2006, down to just over a million now.

Of the 400,000 apartments the Scholz government wants to build every year, 100,000 are supposed to be subsidized by the state. And yet it only managed to build 20,000 such social housing units in 2022, according to the German Tenants' Association.

That has led many specialists, like Dietmar Walberg, managing director of the ARGE institute, to conclude that the government has failed to grasp the scale of the problem. The bottom line, he said, was money.

"If you want 400,000 apartments a year, and 100,000 subsidized apartments, then you have to reach deep enough into your pocket," he said.

Demands for a special housing fund

According to Walberg's calculations, building apartments costs roughly €5,000 ($5,400) per square meter, and at least €2,000 of that would need to be subsidized to make housing affordable. That's why Walberg is among those calling on the government to create a special €50-billion housing fund — similar to the €100 billion Scholz promised the German military last year.

Renters' associations have also joined this cause, and have argued that the government could be doing many other things to create new social housing, like converting retail property or getting rid of the legally-imposed lifespans of subsidized housing.

Investors cashing in on subsidies

"That's a big problem in Germany," Jutta Hartmann, spokesperson for the German Tenants' Association, told DW. "Social obligations like rent control only exist for a certain amount of time. And when that ends, the apartment goes onto the open market, and can be used to make a profit."

That also means that property developers can take the state subsidies to create social housing knowing they can still cash in on the property 20 years down the line.

"The whole issue of social housing construction has been neglected for years," said Hartmann. "Apparently there was no political interest in changing the laws or to make the construction of subsidized housing more attractive for investors."

The only silver lining she can see is that Scholz's government has set up a dedicated Ministry for Housing and Construction at all — Geywitz's department is the first that Germany has seen at the federal level since 1998.

Housing targets vs. climate goals

The other major issue that remains unaddressed: How to square the government's ambitious housing targets with its equally ambitious climate protection targets?

Geywitz announced on Wednesday that €750 million a year would be set aside to subsidize climate-friendly construction. Several housing associations immediately criticized that figure as laughably little in a market where tens of billions need to be invested in construction every year.

Meanwhile, landlords have found that insulating homes can be a great money-spinner — because they don't pay for it. "From a renters' point of view, every climate-friendly renovation of a building automatically means a rise in rent," said Hartmann. "German rental law makes that possible — if a landlord renovates their building, they're allowed to pass on all the costs to the tenants. That isn't fair — that one segment of the population is essentially shouldering the financial burden of climate-friendly modernization."

"The government just doesn't see the main conflict at all," added Walberg.

"The main conflict between the affordability of climate protection and the affordability of housing is being pasted over with words: 'Yeah, we have to do all that, yeah, we'll manage that, it's no problem.' But it is a problem, it's a massive problem, and it's not being properly appreciated."

Edited by: Rina Goldenberg

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