Capital Language Solutions | The refugee crisis and the luxury property segment

The refugee crisis and the luxury property segment

800px-Riehmers_HofgartenObserving the impact of the refugee crisis on Germany’s housing market over the last few days has certainly been interesting. Alongside the usual studies, reports and comment pieces on the continual onward march of rents and property prices (both still rising, although not to the same extent as recent months/years), the shortage of affordable housing, increases in the number of pipeline projects and building permits issued, etc., there have been a few new stories that may well set alarm bells ringing across Germany’s major cities. What has been happening and why the outcry? Read on to find out more.

Are the authorities grasping at straws?

In mid-September, Barbara Hendricks, Minister for the Environment, Nature, Building and Nuclear Safety, announced that Germany would need to build roughly 350,000 new apartments each year if it was to satisfy demand for new housing as a result of the high numbers of refugees arriving in Germany. As anyone who has spent time in Germany during the winter months will know, housing refugees in tents might work for a while in other countries, but is totally impractical here. In order to deliver these new apartments, Hendricks has called for federal funding for the construction of social housing to be doubled to at least €1 billion. Just one week later another report, this time from the Federation of Public Housing Associations, put the figure at 400,000 new apartments per year. To put this in context, 260,000 apartments are actually due to be completed this year, a shortfall of 140,000. Faced with such challenges, it’s no surprise that federal, regional and local authorities are all desperate to find ways to deliver the housing that is so urgently required. Housing was already getting more expensive in Germany’s big cities, and that was before refugees started to arrive.

So what options are being explored?

Germany has notoriously strict planning and construction laws and regulations. They all serve there purpose and in normal circumstances everybody manages to live with them, even if they do delay projects or add to construction costs. After all, the environment is a major topic in Germany and many of the laws are designed to protect (or even enhance) environmental conditions and the quality of the built environment. But, especially in a situation requiring the construction of hundreds of thousands of apartments in a relatively short space of time, the voices calling for these laws to be relaxed, at least temporarily, have been getting louder and louder. It is extremely likely that energy-efficiency requirements will be downgraded and that the procedures for issuing building permits and approving development and zoning plans will be accelerated. Berlin’s Senate is already well on the way to approving legislative changes. Other states/cities are also actively exploring their legal options.

Some measures go much further

Making construction easier is one way to address the housing shortage, particularly in the social and affordable sectors, but it will take a few years before anyone feels any of the benefits. So what is being done right now? Well, a number of cities have started to convert administrative buildings into refugee registration facilities and temporary housing. Former bank buildings, barracks, offices – you name it, they are considering it. Berlin’s Tempelhof Airport is one much-discussed site. But it doesn’t stop there. What about buildings not owned by the state or municipalities? How about privately owned apartments? Should authorities be able to commandeer vacant apartments to be used as refugee accommodation? Is it okay as long as the owners/landlords are paid a fair market rent for the apartments seized in this way? What impact would such measures have on other prospective tenants, for example lower-income households? These are all questions being asked at the moment, questions to which no one can really provide an answer. Of course, by the time the impact is clear, it may well be too late to course correct.

But there aren’t actually that many empty and affordable apartments, are there?

As mentioned above, affordable housing was already in short supply before the latest refugees started arriving. Which is why the apartments now being considered come from the housing sector with the highest vacancy rates – the luxury sector. Investors and speculators (among other groups) have been fairly active in Berlin over the last few years, snapping up luxury condominiums, a large proportion of which sit empty until the buyer makes their exit. According to one recent assessment, there are at least 5,000 apartments in Berlin right now that are vacant for speculative reasons. What a dent that could put in the migration crisis!

We’ve already seen details of the first planned seizures, with apartments in the “Riehmers Hofgarten” development in Berlin-Kreuzberg earmarked. If they have their way, authorities will pay a market rent, roughly €16/m² for the 2,000 m² required to house around 150 refugees, at a total cost of up to €360,000 per month. A privately owned sports centre, the SEZ in Berlin-Friedrichshain, has already been confiscated to provide accommodation for refugees—so it’s not just residential real estate that is being considered.

Whatever you think about the concept of commandeering private property in times of emergency (and is this really an emergency?), there are definitely valid questions about the financial sense of such measures.

What do you think? Will such measures help to ease the current situation or simply cause more problems? Let us know!

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