Residential property market in focus

vdp Real Estate Forum 2024 highlights the residential property market

The vdp Real Estate Forum, held in Berlin on 5 September 2024, provided information on trends in the residential property market, with a strong focus on the prospects for creating affordable housing. Almost 100 guests attended the event in Berlin in person. Another approximately 400 participants used the virtual access.

In his welcoming address, vdp Chief Executive Jens Tolckmitt emphasised that housing is not just a market issue, but is, first and foremost, a socio-political challenge. Not enough living space is being built in Germany, and there is a particular lack of affordable housing. Especially in large cities, purchasing residential property has become wishful thinking for a great many households. At the same time, it is a dramatic fact that more and more people can no longer afford the rents, which are likely to continue rising. This has the potential to cause social tension and plays into the hands of extremist parties, as has happened in two state elections. The federal government is well aware of the problem, he said, and in 2022 it established the ‘Alliance for Affordable Housing’ and finally set up a dedicated ministry with a committed minister at its helm. The majority of the measures adopted by the ministry so far are constructive, but not enough to create new living space on the scale needed. More support is necessary, especially financial support, from the federal and state governments.

Afterwards, Thomas Hofer, vdp Head of Real Estate Market and Domestic Real Estate Finance, gave an overview of the demand for residential real estate loans. He said that demand had fallen significantly from mid-2022 onwards as a result of the sharp rise in interest rates. He added that large sections of the middle-income groups had ceased to be demanders due to higher property prices and higher interest rates. There are now positive signs, he said, as interest rates on loans had stabilised and rising wages and lower inflation would increase households’ spending power. Rising rents are also making the purchase of residential property more attractive again. Accordingly, demand for financing is increasing again.

Prof. Dr. Michael Voigtländer from the German Economic Institute (IW) highlighted the topic ‘Shortage of flats’. In his opinion, the shortage of skilled workers and the low productivity of the construction industry are among the reasons for the low number of new residential buildings. Since the supply of housing in Germany is already far too low and the net immigration requirement is between 400,000 and 500,000 people per year, it is imperative to increase productivity in the entire construction value chain. This could be achieved, for example, by adding storeys to buildings, but above all by increasing the use of serial construction. He cited Denmark as an example, where the proportion of flats built using serial production methods is now 40 per cent. So far, excessive regulation, low economies of scale in construction and legal uncertainties regarding innovations have prevented the necessary progress in production. It is important, and this also applies to ESG regulation, to focus on objectives and not on standards, said Prof. Voigtländer.

Fabian Viehrig, head of construction and technology at the GdW National Federation of German Housing and Real Estate Enterprises, called for ‘More speed for affordable housing’. He expressed concern that the languishing housing construction and the lack of recovery in building permits could lead to a loss of capacity in the construction industry. This capacity would then be lost forever and would no longer be available when the economy recovered. According to him it is important to develop appropriate concepts that would enable fewer people to build more. In his view, the growing use of serial and modular construction technologies, which would involve the increased use of prefabricated parts, would be expedient. The GdW has developed framework agreements for serial and modular construction for this purpose. Viehrig was convinced that apartments could be built within the framework of these concepts that would require a rent of 14 euros. However, lower rents would only be possible with more financial support from the public sector.

The following panel discussion focused on the question of whether the measures adopted in the Alliance for Affordable Housing are sufficient.

The following guests took part in the discussion:

Sandra Wehrmann, member of the board of degewo,

Christian Schmid, member of the board of Helaba,

Prof. Dr. Michael Voigtländer, German Economic Institute (IW).

They discussed with the moderator Michael Fabricius, real estate editor of WELT.

Wehrmann showed how degewo’s construction output had recently changed. Due to higher interest rates and construction costs and changes in KfW development loans, fewer apartments would be completed in 2025 than this year (1,500 residential units). From 2026 on, a higher number of new apartments can be expected again. Currently, apartments can be completed that require an average rent of 15 euros. However, when making this calculation, it should be noted that degewo would build 50% freely financed and 50% subsidised apartments.

With regard to the development of the German real estate market, Schmid was convinced that prices in many segments were stabilising. However, it should be noted that differentiation is also increasing within asset classes and locations. For good locations and good quality, the bottoming out is recognisable; for residential properties, even higher prices are foreseeable again.

In the discussion, Prof. Voigtländer pointed out the increasingly important role of ESG aspects. He explicitly welcomed the goal of doing without fossil fuels in Germany from 2045 onwards. However, he said that it is now important to focus on the increased use of renewable energy. According to Voigtländer, Germany is ‘subsidising itself to death’ and has ‘lost its way’ when it comes to detailed standards. Now that the goal is set, the paths to achieving it must be clear for market participants.

Wehrmann, who hoped that district heating in particular would become green, as this is where major effects could be achieved, agreed. By contrast, maximum building renovation would have the least effect, with energy consumption decreasing relatively little as a result of such measures. She sees the lack of experts in the construction sector for these topics as a burden for the implementation of energy-related measures in new construction and renovation.

Schmid was highly critical of the ESG regulation. The transformation of real estate from ‘brown’ to ‘green’ is not provided for in practice. Furthermore, there is a lack of innovation in Europe, where small-scale measures are adopted and possible projects such as ‘CO2 storage’ are neglected. Prof. Voigtländer would also like to see a different focus for ESG regulation. Politics and regulation should focus much more on the CO2 price. Sweden, for example, has achieved noticeable success in reducing CO2 with significantly higher prices. The panel agreed with Schmid‘s call to stop talking about insulation all the time and to finally start talking about new technologies for sustainable transformation.