Five demands to stimulate the housing market

Call by the vdp to include impulses for housing construction policy in coalition agreement

With regard to the upcoming coalition talks and the possible formation of a new Federal Government, the Association of German Pfandbrief Banks (vdp) is calling on the CDU/CSU and SPD to make housing construction policy a focal point of their work.

“The affordability of housing ought to be high on the political agenda.”
Jens Tolckmitt

“It was totally incomprehensible that the severe housing shortage played virtually no role in the election campaign. This makes it all the more important that the affordability of housing be placed high on the agenda of the coalition talks – for it is one of the key issues of our time. The housing market situation is becoming increasingly serious, particularly in the metropolitan areas. What we need now are swift political impulses that address the high costs as well as stable and dependable framework conditions that all market players can rely on over the long term,” the vdp’s Chief Executive Jens Tolckmitt emphasized.

”Besides defence and infrastructure, the growing shortage of affordable housing must also be given appropriate account.”
Jens Tolckmitt

Referring to the recent agreement between the CDU/CSU and SPD on extensive investments, Tolckmitt added: “We welcome the willingness of the CDU/CSU and SPD to mobilise substantial funds for Germany’s security and future viability. This is long overdue. However, we emphatically demand that, besides defence and infrastructure, the investments currently under discussion also take appropriate account of the shortage of affordable housing, which has grown increasingly severe in the past years. The housing shortage is more than a central social issue of our time. It is also an obstacle to a sustainable revitalization of our economy.”

Given the highly charged nature of the housing shortage in social terms, the vdp is submitting five demands to policymakers and supervisory authorities which would, in the vdp’s opinion, deliver positive impulses to ease the housing market in the short term.

1) Retain an independent Federal Building Ministry with extended powers
The vdp is highly appreciative of the work done by the Federal Building Ministry during the past three years. The ministry recognized the urgent need for action. However, its competencies have not always been enough to allow it to effectively tackle the tremendous housing-policy challenges it faces. For this reason, the vdp is calling on the CDU/CSU and SPD to retain an independent Federal Building Ministry while extending its remit to include the energy-efficient refurbishment of existing buildings.

2) Lower property transfer tax
With the objective of facilitating the acquisition of owner-occupied residential property and of reducing the financial burden for households, the vdp proposes lowering property transfer tax for owner-occupiers. This would significantly reduce the borrowed capital needed when buying a property, thereby making it easier for young families and first-time home buyers in particular to get a foot on the property ladder. The lower tax burden would, moreover, contribute to capital formation among the population. For this reason, the vdp urges the new Federal Government to exert greater influence on the federal states, which are responsible for levying property transfer tax.

3) Abolish the sectoral systemic risk buffer
A number of regulatory measures today make it more difficult for banks to provide real estate financing. One key factor in this context is the 2% sectoral systematic risk buffer that has been imposed on residential property loans in Germany since the beginning of 2022. The upshot is that banks are required to hold correspondingly more capital for residential property loans, which in turn restricts lending and makes it more expensive. The vdp wishes to point out that the supervisory bodies’ justifications for introducing this risk buffer –dynamic credit growth and rising property prices – have long ceased to be valid. A regulatory measure for which there is no objective reason must be abolished. A more moderate macroprudential policy would facilitate lending and encourage investment in housing construction.

4) Lower the risk weight for project developments
A further regulatory measure that obstructs the creation of additional housing and the sustainable transformation of the building stock is one specific element of the European implementation of the Basel III capital adequacy rules. The rule in question provides for a risk weight for ADC (Acquisition, Development and Construction) exposures in the same amount as for defaulted receivables. This constitutes a considerable and incomprehensible burden with regard to financing new residential property projects and the extensive energy-efficient refurbishment of existing residential properties. Lowering the risk weight for ADC exposures would substantially lessen the banks’ capital requirements and cut financing costs. The vdp urges the new Federal Government to advocate this step in Europe.

5) State default guarantees for housing construction
In order to support new housing construction in particular, which is so subdued at present, the vdp proposes the following concrete and swiftly implementable measure: that the state should assume default guarantees for 80% of the total amount of loans granted to create affordable housing. The financing costs for investments could be reduced significantly as a result. Given the historically low loss rates of residential construction loans – the Federal Financial Supervisory Authority (BaFin) puts the total losses from loans secured by residential properties in 2023 at 0.02% – it may be expected that the state would shoulder only a minimal financial burden by assuming the default guarantees.