Why the dream of owning your own home is now becoming more tangible again

The simultaneous rise in interest rates and inflation hit the construction industry hard. Loans to finance residential and commercial real estate have risen to unprecedented heights, building materials are becoming more expensive. Urgently needed apartments and houses are no longer being built.

Germany in 2023. One of society’s basic promises for a good life is suddenly in question: affordable homes for yourself and your family.

New alarming numbers are added almost daily. The Institute for Macroeconomics of the Hans Böckler Foundation sounded the alarm yesterday. The number of completed apartments is expected to fall to an all-time low in the coming year.

Experts predict decline in real housing investments

A damage report:

• The researchers expect the completion of 223,000 apartments in the current year and 177,000 apartments for 2024 – only directly more than in the crisis year 2009 (159,000).
• The experts are forecasting a decline in real housing investments (gross value added in the construction industry) of EUR 20.9 billion this year and EUR 16.4 billion next year.
• Since March 2022, building permits and incoming orders have plummeted. In April 2023 alone, almost 10,000 fewer apartments were approved compared to the same month last year – a drop of over 30 percent. A total of 113,400 building permits were issued from January to May this year – a decrease of 27 percent compared to the same period last year.
• As a reminder, the federal government is aiming for 400,000 new apartments every year. The goal is a long way off.

And even if the state’s climate policy measures are necessary – they will lead to further cost increases in the future. For example, the statutory building energy standard will be tightened to the KfW-EH 40 standard from January 1, 2025. In addition, the KfW new building subsidy was completely canceled by the federal government.

Geywitz: “I support Christian Lindner’s suggestion”

And the federal states are also driving the prices: when building, the real estate transfer tax is due – depending on the federal state, between 3.5 and 6.5 percent of the purchase price is due. Only sales between close relatives are tax-free.

And this is exactly where Construction Minister Klara Geywitz wants to start. The SPD politician sees her annual goals in danger – she had promised 400,000 apartments. At our request, Geywitz openly supports for the first time the initiative of the FDP Finance Minister Christian Lindner for a reform of the real estate transfer tax.

She says: “I applaud anything that makes it possible for families to afford their own home. Part of this can also be an opening in the assessment rates for real estate transfer tax. I support Christian Lindner’s suggestion here.”

Large real estate deals are often settled by share deals

The countries, so the idea, should be able to set the tax rates flexibly. Although no tax rate would be specified, there would certainly be pressure to lower taxes – through competition with other countries.

This makes the project controversial in many countries. “That would only be acceptable if there was counter-financing through the share deals,” a state government official told us.

Background: Large real estate deals are often handled by share deals. Here the buyer does not acquire the property directly, but shares in a company that holds the property.

For capital investors, the depreciation options of real estate are also of crucial importance. While the percentages are the same over the entire period in the case of straight-line depreciation, the depreciation rates in a degressive method are very high at the beginning and become progressively lower over the course of time.

Officials at the Ministry of Construction are working on the draft law

Until 2005, the state encouraged builders and buyers who rent out new buildings or new condominiums for residential purposes using the degressive depreciation method.

The advantage: the reduction in value due to wear and tear on a property in the first few years can be better taxed through a degressive depreciation for wear and tear (AfA) than through linear depreciation and brings financial relief in the first few years.

And this is where Geywitz wants to start. With an additional degressive depreciation option, the tax burden of those who build despite the high costs should be reduced, especially at the beginning.

In the Ministry of Construction, Geywitz officials are already busy working on a draft law. Millions more are to be spent to create incentives to build.

The dream of owning your own home becomes more tangible

But the harmony between Geywitz and Lindner ends on this question – the FDP man fears considerable shortfalls in income, which will ultimately be missing from the till.

Conclusion: The construction crisis has hit Germany so hard that politicians have to take countermeasures across party lines. The traffic light takes millions of euros in hand to drive housing construction.

For first-time buyers, this means that the dream of owning your own home could finally become a reality again. And for the market, it means the long doldrums may be slowly but surely coming to an end.