HOUSING SHORTAGE Building the Case for Tax Breaks

Germany’s housing industry is putting new pressure on the government to provide broader tax incentives for new construction. While lawmakers are eager to ease the urban housing crunch, it’s unlikely they will reach a deal before the Bundestag’s summer recess.
As Berlin grows, there are more people than places for them to live.

It’s no secret that the search for a place to live in cities like Berlin and Munich has become much more difficult in recent years. Germany is in the grips of a major housing shortage - only 240,000 residences out of the 400,000 needed were built last year - but lawmakers are still wrangling over how to fix the problem.

For months, members of the Bundestag have been promising tax incentives for developers, in hopes of spurring more investment in housing construction. Yet with the German parliament’s summer recess just days away, they appear to be no closer to green-lighting a deal.

The gridlock is prompting new calls for action from the real estate industry. Axel Gedaschko, the president of the Federal German Housing and Real Estate Organisation, or GdW, is among those who say the market needs help right now.

“It would be disastrous for the market if we were to go into the summer recess at an impasse,” he said. For property developers, there are myriad problems on the table that are exacerbating the affordable housing shortage, Mr. Gedaschko said.

Though construction of some 309,000 residences was approved last year, GdW said its data shows that the number of building permits issued in Germany’s biggest cities – including Munich, Frankfurt, Berlin, Hamburg and Cologne – has actually gone down.

“Despite favorable interest conditions, not enough new, affordable residences are being built,” Mr. Gedaschko said. Land is either too expensive or in short supply, the GdW boss added, and the industry is subject to high taxes, restrictions and building standards.

“These issues have already been on the table for a while now,” he said - but the industry is still waiting for that to translate into concrete policy changes.

I am confident that the parliamentary groups in the coalition will compromise and reach an agreement before the summer recess.

Draft legislation foresees tax relief on 35 percent of new construction costs for three years. That total includes annual tax breaks of 10 percent each for the first and second years - and 9 percent for the third year - plus the standard allowances of 2 percent each year.

These measures would run out at the end of 2018 and would only apply to cities with tight housing markets. For German taxpayers, the total bill is estimated to be at least €2.15 billion, or $2.4 billion.

Despite months of negotiations, however, members of the governing coalition appear little closer to reaching a deal that would put those proposals into law.

Germany’s federal minister in charge of building and urban development, Barbara Hendricks, told Handelsblatt in mid-June that she was optimistic about the prospects for an agreement. “I am confident that the parliamentary groups in the coalition will compromise and reach an agreement before the summer recess,” she said.

Ms. Hendricks called on her Social Democratic party to drop its demand for a rent ceiling to be applied to the residences in question. In return, she said, the SPD’s coalition partners - Chancellor Angela Merkel’s Christian Democrats - would agree to stricter eligibility requirements.

The tax relief was originally meant to apply to construction costs of up to €3,000 per square meter, excluding real estate expenses, but center-left politicians want to see more of the money put toward lower-cost housing.

But Mr. Gedaschko says building costs are on the rise. Whereas in 2000 it was possible to build an average apartment building for €1,739 per square meter without the price of land factored in, the GdW boss said the cost has risen to €3,190 per square meter in the most desirable locations.

With an eye to these developments, the GdW boss has been quick to criticize Berlin’s approach: At an annual industry press briefing, Mr. Gedaschko said politicians shouldn’t use the issue of housing to score points on the campaign trail.

Silke Kersting reports for Handelsblatt from Berlin, focusing on consumer protection, construction, environmental policy and climate change. To contact the author: [email protected]