Politics of housing in Germany

Here we provide you with an overview of the key statements that are important for the residential real estate industry in Germany.

“Wohnungsbau-Turbo" and speeding up planning and approval procedures

"We will boost housing construction [...].”

(Coalition agreement, lines 706, 707)

"Germany must take bold steps to speed up planning and building."

(Coalition agreement, line 681)

The new government has promised to present a draft bill within the first 100 days for a so-called "housing construction turbo". This is likely to include some of the measures that the previous government had already announced as a “construction turbo”, but which were never implemented. In particular, assistance for housing construction in inner-city areas is expected, as well as the adjustment of noise levels to facilitate mixed residential and commercial use. This assistance will encompass simplifying planning and approval processes as well as building regulations. This will apply in areas where there is a development plan and areas where there is not. 

In a second step, comprehensive reform of the German Building Code is planned, to speed up construction. The aim is to identify regulations and procedures that can be simplified or even eliminated. In future, processes will be reduced and duplication avoided. The involvement of the authorities and the public should also become more streamlined. Overall, it is intended to identify ways to make the whole process more efficient, with the ultimate aim of completely digitalising the entire planning and approval process. This general commitment to greater digitization and less bureaucracy, which is also reflected in other areas of the coalition agreement, has been well received across the industry.

But the government has said that  development should not only become faster, it should also become easier and cheaper. In order to reduce costs, the future government has decided to introduce building type E ("E" as in "easy") - another project that has not been implemented due to the collapse of the previous government. The planned changes to building planning laws will allow future construction projects to dispense with non-mandatory building standards, making construction faster and more cost-effective. The binding effect of technical standards is to be reviewed and reduced to a safety-relevant level. 

However, it remains to be seen how the industry will respond to these reforms, for example, what standards insurance companies and financiers of construction projects will apply in the future. In addition, serial and modular construction are to be promoted more widely in order to exploit the savings potential they offer.

We will also have to wait to see how the reform to speed up the planning and construction process will be implemented in practice, once the relevant legislative proposals are put forward.

Investment and tax relief offensive

"We will [...] reduce financing costs so that [...] a large number of apartments can be built in tight housing markets for less than EUR 15.00 per square metre."

(Coalition agreement, lines 743-748)

This drive to reduce bureaucracy will be accompanied by an investment and tax relief package, which will include improved tax conditions for new construction and renovation of existing housing, equity replacement measures (measures designed to reduce the amount of equity capital otherwise required from investors/developers) and the possible provision of state guarantees for mortgage loans.

The existing funding programmes of the German Development Bank (KfW) are to be consolidated and simplified into two central programmes - one for new construction and one for the modernisation of existing buildings. These programmes are designed to provide incentives for simple, climate-friendly and cost-efficientconstruction. The industry has particularly welcomed the announcement that the EH-55 standard will be reinstated, at least for a limited period, for buildings in Germany which require only 55 percent of the energy of a conventional new building and are therefore particularly environmentally friendly. 

In addition, the creation of a new investment fund for housing, together with government support in the form of public guarantees (e.g. from KfW), should lower financing costs.

Overall, the coalition agreement states the new government's goal of creating a large number of apartments in tight housing markets for less than EUR 15.00 per square metre.

Strengthening municipal pre-emption rights

"[...] pre-emptive rights for municipalities [will be] strengthened [...]."

(Coalition agreement, lines 719, 720)

In order to curb speculation, the municipal pre-emptive right is to be strengthened particularly in environmental protection areas and in the case of derelict properties. The focus is on simplifying price-restricted pre-emption rights. This will allow the municipality exercising the pre-emption right to determine the amount it has to pay on the basis of the market value of the property at the time of purchase if the purchase price actually agreed between the parties significantly exceeds the market value of the property. In addition, greater emphasis will be placed on preventing the circumvention of the pre-emption right through share deal agreements.

Building sector and climate protection

"The building sector is key to achieving climate targets."

(Coalition agreement, line 752)

In the construction and housing sector, climate protection remains a key concern. The new government recognises the building sector as crucial to achieving climate targets - but the focus is shifting: Affordability, technological openness and security of supply are also objectives for the modernisation of heat supply.

The German Buildings Energy Act (GEG) should become more flexible and simple. Instead of pure energy efficiency, the key control parameter should be the achievable avoidance of CO2. Associations had repeatedly called for this and welcome this point in the coalition agreement.

Subsidies for renovation and heating will continue, and in future the cost of energy-efficient renovation of inherited properties will also be tax-deductible. With regard to the heat supply, the neighbourhood approach is to be strengthened and the integration of the GEG and the municipal heat planning is to be simplified. Recognizing neighborhood concepts as an important part of the energy transition is considered essential in the industry. At the same time, regulations must be put in place to link centralized and decentralized energy supply.

The coalition agreement contains a number of measures to combat climate change, but their concrete implementation remains to be seen.

Tenant protection

"Tenants must be effectively protected against excessive demands due to ever-rising rents."

(Coalition agreement, line 709)

The coalition agreement provides for a number of measures that will lead to stronger regulation in the area of tenancy law:

The "rent brake" is to be extended until the end of 2029. A group of experts from tenants' and landlords' organisations will draw up proposals by 2026 to harmonise tenancy law, reform the rules on rent profiteering and introduce fines for breaches of rent control.

In tight housing markets, index-linked rents for residential property, furnished rentals and short-term rentals will be more strictly regulated. The regulation of furnished rentals is likely to be of particular interest to investors, as this type of rental has become increasingly popular in recent times, particularly as a way of circumventing rent controls. These "loopholes" are now to be closed.

A change in the modernisation levy is intended to give property owners greater incentive to invest in housing. At the same time, however, the affordability of rents is to be better guaranteed in the future. Specifically, the value limit for minor modernisation work, for which a simplified procedure for calculating rent increases applies, is to be raised from the current EUR 10,000 to EUR 20,000 by the end of 2025. The modernization levy allows landlords in Germany to recover part of the costs incurred for modernizing a building by increasing the rent paid by tenants. The options for this levy are to be changed, but exactly how remains unclear.

Finally, line 790 of the coalition agreement promises: "Those who rent at affordable prices will be rewarded with tax reliefs." However, it remains unclear how this will be achieved.

Conclusion and outlook:

The new government has set itself ambitious goals in the areas of construction and housing. However, much of it has already been discussed and initiated under the previous government or has been demanded by the industry for years.

The statements in the coalition agreement must now be followed by concrete legislative initiatives. It should then become clearer how the new government intends to put its agenda into practice, and what new legal framework the real estate industry will operate within in the future.

We will be monitoring all developments and keeping you up to date.

Authored by Sabine Adams.