The construction industry is in the middle of difficult times. Price surges in energy-intensive materials such as steel, glass and cement make construction much more expensive. At the same time, rising interest rates – as a monetary policy response to inflation – and expiring subsidy programs mean that many planned construction loans are falling through.
Contrary to what is described in economic textbooks, there are no signs of a convergence between supply and demand on the housing market, but rather a further drifting apart. Because with an increasing number of households, higher prices can only depress demand to a limited extent – after all, living space is an essential commodity.
According to calculations by the construction industry, new buildings in metropolitan areas currently have to be rented for at least 18 euros per square meter in order to cover all costs – cold at that. A 100 square meter apartment with all ancillary costs would quickly cost 2,500 euros per month, far more than most employees earn net. Europe’s largest landlord Vonovia therefore announced that it would stop all new construction projects. The existing lack of living space is not getting any smaller as a result.
“Housing is a basic need”, the SPD, Greens and FDP emphasized in their coalition agreement and promised to make “building and living in the future affordable, climate-neutral, sustainable, barrier-free and innovative”. “Our goal is to build 400,000 new homes per year, 100,000 of which are publicly funded homes.” Probably no other traffic light project was so blatantly missed.
The construction industry estimates that it completed around 275,000 homes last year, with a further drop to 250,000 units expected in 2023. For comparison: 293,000 new apartments were built in 2021.
More people, fewer new homes
At the same time, demand is increasing rapidly. Contrary to earlier forecasts, the resident population in Germany is steadily increasing. According to the first official estimates, Germany had at least 84.3 million inhabitants at the end of 2022. Never before have so many people lived here. For comparison: in 2010 the population was 80.2 million.
Assuming an average of two people per dwelling, around 170,000 dwellings would have had to be built each year just to accommodate these four million new residents – without taking internal migration into metropolitan areas into account.
The problem is exacerbated by the fact that the baby boomers born in the 1950s and 1960s are gradually reaching retirement age, but will then remain in their traditional homes for around two decades – even if their children have long since moved out and are claiming their own living space. A move to a smaller apartment is not attractive for many, since they often have very cheap rental contracts and a smaller apartment would therefore usually be more expensive than the previous one. The required living space per inhabitant will therefore continue to rise. Our rapidly aging society needs more living space, not less.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. More about his work and his team at research.handelsblatt.com.
This is confirmed by the Federal Statistical Office: According to the latest official data for 2021, the average living space per apartment was 92.1 square meters and the living space per inhabitant was 47.7 square meters.
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This means that living space per inhabitant has increased by 1.6 square meters since 2011 – partly for reasons of comfort, partly because more people are living alone. Conversely, the number of people per apartment fell from 2.0 to 1.9 in the same period. Just to cover the resulting additional demand, almost 200,000 additional apartments would have been needed every year.
More immigration can dampen the shortage of skilled workers, but increases the housing shortage
Now the federal government is relying on increased immigration in order to defuse this aging problem, which has been well known for decades. Non-EU citizens should also be allowed to enter the country without a recognized degree. Selection criteria should be qualification, professional experience, age and connection to Germany. Average estimates assume that the German labor market needs a net immigration of 400,000 skilled workers every year, each of whom – together with family members – needs living space.
In addition to the difficult German language, a lack of living space is likely to be a major obstacle for potential immigrants. Because without a permanent employment contract there is hardly a rental contract in this country, and without proven accommodation no job can be accepted here.
One approach to alleviating this problem could be a targeted, stronger promotion of company housing. Such service apartments have a long tradition. The Fuggers built social housing in Augsburg in 1521. At the end of the 19th century, Krupp built houses in the Ruhr area for its workers and their families, and BASF also built them.
Company apartments have a long tradition in Germany, including at BASF.
(Photo: dpa)
In the 1970s there were still 450,000 company apartments in Germany, mostly in state-owned companies such as the post office and the railways. However, like many municipal or state-owned housing associations, these apartments were sold to private investors. Some companies that want to acquire workers from abroad are now thinking about offering living space themselves again as part of their salary.
Dutch build much cheaper
A look at the Netherlands shows how rising construction costs can be countered, where construction is much cheaper than in Germany – without neglecting safety and energy standards. One reason is technology-neutral construction standards that define a value for energy consumption, for example, but do not prescribe the means by which this is to be achieved. This not only allows the innovative potential of the construction industry to be fully exploited, but also sparks competition for the best methods, which often reduces costs.
In addition, the government in The Hague streamlined the building regulations in 2010. For example, there are no parking space regulations there, which in Germany can often only be complied with by building expensive underground car parks. In addition, cost-cutting economies of scale could be realized if each federal state did not have its own building code. So there is potential for simplification and standardization.
If the federal government wants to permanently solve the housing problem, it will have no choice but to pursue more “supply policy”. Rent controls and higher housing allowances are popular with many voters. However, such aid exacerbates the problem, since it reduces rental costs in the short term, but at the same time increases demand among the beneficiaries.
All those who don’t have a home at all are left behind – such as the foreign skilled workers who are very desirable for the economy as a whole and who are supposed to keep the German economy on course for growth. Doubts as to whether this will succeed are justified.
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