Capital Language Solutions | The housing shortage is here to stay

The housing shortage is here to stay

crane-255505_960_720Whichever way you look at it, the number of new apartments being built in Germany is staggering. Does this mean that the shortage of housing in Germany’s major cities will soon be a thing of the past, or that prices and rents are about to fall? The truth lies somewhere beyond the headline figures.

Housing: Construction Boom

The cityscapes of Germany’s biggest cities are not defined by the kinds of skyscrapers you find in London or New York. Instead, their skylines are dominated by a myriad of colourful cranes, swinging backwards and forwards in something close to a slow-motion ballet. If confirmation of a construction boom were needed, this is it. In Berlin, from the vantage point of a roof terrace on Kurfürstendamm, the effect is striking. And it’s not just Berlin that is undergoing a construction boom – across Germany, more than 54,000 apartments were granted building permits in January and February this year, a 33% increase over the same period in the previous year. But could this increase be nothing more than a blip, a temporary effect created by a rush of applications towards the end of 2015 as developers attempted to squeeze their projects through before the second stage of energy-efficiency regulations took effect on 01.01.2016?
As the amount of housing increases, the rules of supply and demand dictate that rents and prices should stabilise or even decline. And yet market observers remain openly sceptical that we will see a real easing of the housing shortage anytime soon. Why? Because they believe that although the order books of Germany’s largest construction companies, such as Zech Group, Bonava and Formart, are currently overflowing, a number of external factors will soon put the brakes on.

  • Construction costs are spiralling – the latest version of EnEV, energy performance regulations applying to newly constructed buildings, have added 7% to construction costs whilst cutting Germany’s energy consumption to the tune of 0.02%.
  • Not enough land is being zoned for housing
  • Land is sold to the highest bidder
  • Building permits take too long to be approved
  • Government regulations create uncertainty for developers, investors and landlords

Housing: planning and development

There is a significant amount of housing in the pipeline across Germany. Recent figures show that 17.1 square metres are currently in planning, a year-on-year increase of 1.1 million square metres. Sounds good, doesn’t it? To put this figure into some kind of perspective it’s worth noting that the increases recorded between 2010 and 2015 amounted to between 1.3 million and 1.7 million square metres. So last year’s rise, while welcome, is actually down on previous years. According to Destatis and bulwiengesa, roughly 250,000 residential units were completed each year in 2014 and 2015, including condominiums, detached and semi-detached houses and rental apartments, quite a long way short of the 300,000 to 400,000 that are required to meet current demand.

Housing: Prices

80% of the 1,600 members of the German Association of Private Housing and Real Estate Companies (BFW) expect construction costs, and as a result, prices and rents, to continue their upward march. What might at first sound like good news for developers and estate agents is actually nothing of the sort. “It has become almost impossible to build new apartments in the low- to mid-priced segments,” warned the BFW’s President, Andreas Ibel at a recent conference.
A recent analysis by the Arbeitsgemeinschaft für zeitgemäßes Bauen e.V. revealed that a typical, inner-city apartment building with twelve 73 m² units, now costs around €2,400/m² to build. Add the costs of land and you are easily over €3,000/m². For many would-be tenants and buyers, this is simply too expensive. With completion costs of €3,000/m², landlord would have to let at €10.05/m² per month, just to break even.

The headline figures tell a fairly uncomplicated story, but, as with everything in life, the situation is not quite so straightforward.

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