The housing shortage is particularly high in the German metropolises.
The rent brake had been introduced in 313 cities and municipalities by the end of 2016. It should ensure that when an apartment is re-let, the rent rises to the level of the local comparable rent plus ten percent at most. However, there are always doubts about their effectiveness.
Maas wants to oblige landlords to disclose the pre-rent
“The rent brake was a bad design from the start,” criticized the Green MP Christian Kühn. You have lost the braking effect due to the “countless exceptions and loopholes that were written into the law at the instigation of the Union”. The SPD had recognized “that there is an urgent need for improvement”. A draft bill by Federal Consumer Protection Minister Heiko Maas (SPD) has been rotting in the drawer for a year and a half.
Maas has long been campaigning to oblige landlords to disclose the pre-rent of their own accord. He also wants to reduce the proportion of modernization costs that landlords can pass on to their tenants. However, his proposals are met with resistance in the Union.
Because of the mini interest, more and more Germans are buying houses and apartments. A study shows in which cities this is particularly worthwhile. Right at the forefront: Bonn and Wolfsburg.
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When it comes to buying real estate, metropolises like Munich, Hamburg or Frankfurt am Main are still the most popular locations. However, they do not bring the best returns. Because real estate prices are rising so rapidly in such locations that buying an apartment or house there is less and less worthwhile.
A new study now shows where investors can still get real bargains. The real estate service provider Dr. Luebke Kelber compared 110 cities and defined Germany’s “hidden champions”. The greatest returns on existing properties are therefore in cities such as Bonn, Wolfsburg and Osnabrück; When it comes to investments in new buildings, Wolfsburg, Bremen and Mannheim are at the fore.
For their ranking, the experts first determined a risk indicator for the cities examined. In addition to the demand for living space, they also took into account economic strength, population development and rental and purchase prices.
For the ranking of the so-called hidden champions, the experts then calculated a minimum return to be achieved based on the location risk – the higher the risk, the higher the return should be. They then calculated the difference between this minimum return and the actually achievable return on equity.
Falling interest rates offset rising purchase prices
The location risk is therefore lowest in cities like Frankfurt – but so is the potential profit. For example, the study for the purchase of an existing property in a good location in Frankfurt am Main comes to a return on equity of just 2.9 percent. It was assumed that the buyer has a share of 40 percent equity and pays an interest rate of 1.15 percent.
In Bonn, on the other hand, real estate purchases under the same conditions can generate a return of 7.2 percent. Even higher returns can be achieved in Frankfurt an der Oder or Gera, but investments there are also associated with a high level of risk.
Overall, the real estate experts see a trend towards sharply rising purchase prices. “The return on equity for residential properties has often not decreased any further compared to the previous year because the interest on loans has also fallen significantly again,” says Ulrich Jacket, Managing Director of Dr.123helpme.me Luebke Kelber. On average, interest rates have fallen from 1.85 percent to 1.15 percent.
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According to the study, returns on equity of more than four percent can currently be achieved on existing properties in most cities. In the new construction segment it is usually more than three percent. Should interest rates rise again, yields could fall significantly.
After several reports, according to which the rent cap planned in Berlin could be unconstitutional, some legal scholars have now come to a different conclusion. In a report presented on Monday on behalf of the Rosa Luxemburg Foundation, state law measures to regulate rents under public law are permissible. This does not conflict with federal law, which is responsible for structuring private rental contract law.
According to the experts from the Center for European Legal Policy at the University of Bremen, this means for Berlin: “Both a rental price moratorium and a rent upper limit or rent reduction are neither excluded from nor contradicted by federal law.” The state legislature has the competence to introduce corresponding regulations.
Rot-Rot-Grün wants to freeze rents for 1.5 million apartments built before 2014 for five years at the level of mid-2019 and set upper limits for new rentals depending on the age and furnishings of the apartment. If the upper limits are exceeded by more than 20 percent, it should be possible to lower existing rents – but only nine months after the law is planned to come into force in the first quarter of 2020. Berlin is breaking new legal ground here, and constitutional suits against the project have already been announced.
The Left Group sees its course confirmed by the report on behalf of the foundation close to it. “We therefore call on the opposition and the landlord lobby to finally hold a factual debate with us about the individual questions of the law,” said the Left MP Sebastian Schluesselburg. “The time to hide behind the clumsy and false argument of unconstitutionality is over.”
Apartment rents in Germany rose in the first half of the year. The cold rents for new contracts were 4.4 percent more expensive than in the same period of the previous year – this is due to the property boom. These are the results of an evaluation by the Federal Institute for Building, Urban and Spatial Research (BBSR).
With new contract rents, an average of 7.90 euros per square meter without additional costs is due.
However, the gap between town and country continues. While in cities with more than 500,000 inhabitants there was an increase in new and re-letting of an average of 5.6 percent to 10.39 euros per square meter, in rural districts there was only an increase of 3.4 percent to 6.03 Euro.
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Munich remains the most expensive city for tenants
Munich remains the front runner in new rental agreements with an average rent of EUR 16.40 per square meter, followed by Frankfurt (EUR 12.95) and Stuttgart (EUR 12.44). The BBSR evaluated advertisements from real estate platforms and daily newspapers for the statistics. Rents from existing contracts were not recorded.
The demand for real estate is great. Nevertheless, fewer apartments have been approved in Germany. The housing shortage is particularly high in the German metropolises. But what are the reasons for the decline in numerous building permits?
196,400 apartments were approved from January to July 2019, 3.4 percent fewer than in the same period of the previous year. This was announced by the Federal Statistical Office. In July alone there was a decline of 8.6 percent. The permits apply to both new buildings and construction work on existing houses.
Shrinkage in new residential buildings
With the decline, the trend from the first half of the year continued, in which the statisticians had already recorded a decrease in building permits of 2.3 percent. The shrinkage was particularly evident in the first seven months in the case of new residential buildings, where 4.1 percent or 7,300 fewer apartments were approved. While the number of building permits for single-family houses barely fell, there was a high drop of 4.1 percent for two-family houses and multi-family houses.
Almost 100,000 too few apartments were built in 2018
According to estimates by politicians and the construction industry in Germany, 350,000 to 400,000 apartments must be built annually in order to meet the high demand for apartments. In 2018, the new construction of almost 302,800 apartments was approved. New construction is slowed down by the fact that space in metropolitan areas is scarce, prices have risen significantly and craftsmen can hardly keep up with the flood of orders.
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New residential construction stands and falls with the designation of enough affordable building land by the municipalities, explained Andreas Ibel, President of the Federal Association of Independent Real Estate and Housing Companies. The decline in building permits is greatest in the metropolises. “New apartments can only be planned if you also know where to build them.”
Sources used: dpa news agency
The federal government wants to expand funding for the construction of social housing in order to create more affordable housing. But a study by the Institut der deutschen Wirtschaft Köln (IW) shows how poorly the funding is: only 46 percent of households in social housing are really in need.
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Originally, the social housing subsidy was supposed to slowly end. But because apartments are becoming scarce and expensive, especially in large cities, politicians have turned around – the federal government wants to increase social housing subsidies from 518 million euros per year to one billion euros, possibly even to two billion euros.
Building land is missing
However, that would not solve the problems on the housing market, the IW experts show in their analysis: Thanks to the low interest rates, investors are definitely willing to build. But they simply lack the ground. On the one hand, cities do not have enough new building land, and on the other hand, it is lucrative for landowners to hold back building land because its value is currently increasing by more than ten percent per year in good locations.
The chairman of the Federal Association of the Construction Industry, Karl-Heinz Schneider, also criticizes the lack of affordable building land that is ready for construction. In view of the continuing influx of people into the cities and the increasing number of refugees, around 400,000 apartments are needed in Germany every year, said Schneider.
In addition, there would be lengthy planning and approval procedures. For the current year, planning permits for around 300,000 apartments are expected – that is still 100,000 too few.
Only one-time proof of need
In addition, according to the IW study, social housing subsidies suffer from the fact that those who want to move into social housing only have to prove their need once. If their status changes afterwards – for example because they find a well-paid job – they do not have to move out of the social housing.
Instead of social housing subsidies, the IW Cologne recommends two other levers to improve the situation: First, the state should make new building land available. To do this, large cities and popular municipalities have to designate new areas and invest in appropriate infrastructure.
Better funding through housing benefit
And the property tax would have to be replaced by a land value tax. “If the market value of a property is taxed, it would prevent landowners from holding back building land to speculate,” explains IW economist Michael Voigtländer.
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On the other hand, the federal government should focus more on housing benefits than on social housing. Because housing benefit is only paid as long as a household is really in need. At the same time, however, the entire housing market is open to the recipients and not just the small part of social housing.
The Postbank study examined which major German cities will grow by 2030 – taking into account the influx of refugees – and how population development is likely to influence property prices.
Forecast: price increases for condominiums based on population development up to 2030
RankingCityPopulation developmentincl. Refugee forecast * Population-related price development for condominiums ** 1Berlin4.74% 14.49% 2Potsdam4.46% 14.03% 3Hamburg4.38% 13.86% 4Wiesbaden4.21% 13.77% 5Bonn3.69% 12.04% 6Stuttgart3.19 % 10.01% 7Mannheim2.80% 8.66% 8Nuremberg2.41% 7.30% 9Düsseldorf2.18% 6.74% 10Aachen2.06% 6.33% 11Munich1.58% 4.39% 12Dresden1.57% 4 , 06% 13 Leipzig 1.38% 3.40% 14 Cologne 1.22% 3.38% 15 Bremen 0.48% 0.21% 16 Hanover-0.11% -1.35% 17 Karlsruhe-0.87% -4.21% 18Mainz -0.95% -4.31% 19Augsburg -1.51% -6.41% 20Braunschweig -1.91% -7.67% 21Frankfurt aM -2.05% -8.12% 22Bielefeld -2.49% -9.59% 23Dortmund-2.56% -9.84% 24Kiel-3.14% -12.16% 25Essen-3.62% -13.54% 26Münster-3.66% -13.69% 27Mönchengladbach -3.98% -14.81% 28 Saarbrücken-4.47% -17.75% 29Bochum-4.65% -17.17% 30 Wuppertal-4.85% -17.86% 31Erfurt-5.07% – 19.13% 32Rostock-5.84% -22.91% 33Duisburg-6.00% -21.90% 34Gelsenkirchen-8.93% -32.14% 35 Halle (Saale) -10.41% -38.00 % 36 Chemnitz -13.47% -48.58%
* For assumptions on the refugee forecast, see section “Background information” ** Forecast price development based on assumed population development including influx of refugees; Changes in the sales price in euros per square meter
Real estate prices are stabilized by the higher demand for living space
According to the study, the price drops in shrinking cities are likely to be mitigated by another trend – namely, the rising demand for living space. In all 36 cities examined, the property sizes per household have increased over the past ten years. In 2005, people lived on 71.8 square meters, now the average is 73.3 square meters. The Postbank study predicts that the demand for living space will continue to rise in three quarters of the cities examined by 2030.
The reasons for the increased demand for living space in cities are the increasing number of households, especially single households, as well as the desire for more living space. “The increasing demand for living space will primarily boost the demand for owner-occupied apartments,” explains Postbank expert Dieter Pfeiffenberger.
Where investments are still worthwhile
“Anyone who thinks that the price increases in the growth cities will soon come to an end is wrong,” says Pfeiffenberger. “The study shows: The curve will no longer go up as steeply as in previous years, but the upward trend will continue