Back on track for success in housing policy

Rising construction and building land costs increase prices for residential real estate

The desire for home ownership is widespread in Germany: 74 percent of the population would rather live in their "own four walls" than in a rented flat.[1] In fact, however, desire and reality are far apart. Although a large majority would like to own a residential property, the home ownership rate in Germany is below 50 percent. For younger households up to 45 years of age, the home ownership rate is even lower and has been declining since the beginning of the 2000s.[2] 
This puts Germany at the bottom of the league in an international comparison. There are many reasons for this discrepancy. In addition to the high ancillary acquisition costs in Germany, rising construction and building land costs are driving up the prices of residential property.

Rapid increase in property interest rates

Most recently, the situation on the housing market has become even more acute due to the rapid increase in property interest rates: the interest rate for a 15-year fixed-interest period rose from one to four percent within a few months.[3] 
Even experts were surprised by the dynamics of the situation. However, the federal government's current approaches to solving the problem are not very effective and tend to exacerbate the problems through higher standards for new buildings, renovation bans and cancelled building subsidies.

Home ownership promotion comes to nothing despite KfW loans at reduced interest rates 

One example is the "Home Ownership Promotion for Families (WEF)" programme launched in June 2023, which is intended to support families with small and medium incomes in building a house through low-interest KfW loans. The problem: the low-interest loans are only to apply to new buildings with the highest energy standards. However, with the purchase prices per square metre currently being called for new buildings with KfW Efficiency House Standard 40, it is hardly possible for families with incomes below 60,000 euros to exceed the equity threshold required for debt financing. There is therefore a real danger that the newly designed subsidy will come to nothing.

Reform of the real estate transfer tax and suitable funding options for financing

The question is how to put housing policy back on track. The good news: since the problems are not (completely) new, the ways out of the misery are at least partly known. The bad news: so far, the courage to implement the necessary reforms is lacking.

In order to reduce the costs of real estate financing, it is particularly important to implement a reform of the real estate transfer tax as well as suitable funding options for financing, for example in the form of subordinated loans or real estate credit insurance.[4] 

Stronger investments in digital infrastructure and rural areas

In addition, due to rising property prices in recent years, the classic fees for notaries and entries in the land register (in the amount of 1-1.5 per cent of the purchase price) have increased significantly in nominal terms at the same expense. It should therefore also be considered whether these costs really need to be linked to the purchase price. This would reduce the high acquisition (ancillary) costs and lower the hurdles for the acquisition of ownership. In view of the problem description, young families with little equity capital in particular should be taken into consideration.

But also the harmonisation and dynamisation of building regulations as well as stronger investments in digital infrastructure and rural areas can contribute to solving the problem in the medium to long term.[5]

Promotion of home ownership as an important component of social policy

Home ownership plays a central role in making the social market economy's promise of upward mobility a reality again. Firstly, tenants have been particularly hard hit by the price increases on the housing market in recent years. Home ownership helps to protect the population from rising rents and displacement. Secondly, a good housing situation in property supports young families and prevents child and parental poverty, for example. Finally, home ownership has an asset function. This means that it can lead to a long-term increase in wealth and can contribute and - especially in view of demographic change - makes an important contribution to old-age provision. In this respect, the promotion of home ownership is and remains an important component of social policy and can make a significant contribution to equality of opportunity and intergenerational justice. It is time to be courageous and, in particular, to finally implement the measures to reduce ancillary acquisition costs.
 

[1] Sparda-Studie „Wohnen in Deutschland 2023“. https://sparda-wohnen2023.de/ (letzter Aufruf: 23.06.2023).

[2] Pekka Sagner und Michael Voigtländer (2021): Wohneigentumspolitik in Europa – Ein Gutachten des Deutschen Instituts für Wirtschaftsforschung erstellt im Auftrag der Friedrich-Nauman-Stiftung für die Freiheit. https://www.iwkoeln.de/studien/pekka-sagner-michael-voigtlaenderwohneigentumspolitik-in-europa.html (letzter Aufruf: 23.06.2023).

[3] Wie entwickeln sich Bauzinsen in der Baunfinanzierung? https://www.interhyp.de/ratgeber/was-muss-ich-wissen/zinsen/zins-charts/ (letzter Aufruf 23.06.2023).

[4] Felicitas Schikora (2022): Planen, Bauen, Wohnen. Hürden der Wohneigentumsbildung. Konrad-Adenauer-Stiftung, Berlin. https://www.kas.de/de/monitor/detail/-/content/planen-bauen-wohnen-huerden-der-wohneigentumsbildung (letzter Aufruf: 23.06.2023).

[5] Felicitas Schikora (2022): Mit Modernisierung und Digitalisierung Wohnungsbau fördern. Konrad-Adenauer-Stiftung, Berlin. https://www.kas.de/de/monitor/detail/-/content/mit-modernisierung-und-digitalisierung-wohnungsbau-foerdern (letzter Aufruf: 23.06.2023).