New housing construction in Germany has collapsed.
(Photo: IMAGO/Frank Peter)
It can hardly be surpassed in terms of symbolic power: Europe’s largest landlord Vonovia will initially stop building new apartments, only existing construction sites will be completed, as CEO Daniel Riedl announced this week. With construction costs of 5,000 euros per square meter, you have to charge 20 euros per square meter, according to Riedl, which is completely illusory outside of cities like Munich and Frankfurt.
As symbolic as the announcement is, in the end Vonovia joins a large number of companies that have canceled projects due to interest rate hikes and rising construction costs. This expressly includes many state-owned companies and housing cooperatives. The entire new building has basically come to a standstill.
The sharp criticism from politicians of Vonovia’s announcement is therefore all the more irritating. The Federal Ministry of Building says that Vonovia, as the largest housing company, cannot shirk its responsibilities and should stop paying dividends and use the money to secure the new building.
Even if Vonovia did not provide any details on the size of the canceled projects, one thing is clear: in view of the overall market and the completely unrealistic political goal of building 400,000 new apartments a year, Vonovia’s plans only play a marginal role.
It is the current general conditions that are holding back new construction as a whole. And yet it is at the discretion and responsibility of every company not to make unprofitable investments in order to ensure long-term survival.
The core problem, why the new building collapsed despite the high demand, is well known and cannot be solved by political polemics. Due to the massive rise in interest rates from one percent a year ago to four percent and the unprecedented rise in construction costs, any return calculation for landlords is no longer necessary. In addition, the political framework conditions as far as new construction subsidies are concerned are so uncertain and inadequate that support from this side is also lost, at least for the moment.
Not a single new apartment is being created as a result of populist demands
Since it is illusory to hope that low interest rates will come back and the construction costs cannot be halved overnight, there is only one thing left to do: sit down together and consider what political framework conditions are needed to start the new building of apartments to make them economical again. It is also about regulation, such as aligning or even lowering building regulations. A lot has already happened in this area, but by no means enough.
One thing is certain: Not a single new apartment is created by publicly fighting populist demands.
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