“Quite simply too few apartments have been built”

Interview with Reinhard Quast

Over half the population of Germany lives in rented accommodation. At the 11th “Wohnungsbautag” (Residential Building Conference) it was noted that housing was now the most important social question for a good proportion of the population. Above all in the cities and in the larger urban areas, there was a lack of affordable housing. The “Verbändebündnis Wohnungsbau,” an alliance of leading housing and building associations which organizes the “Wohnungsbautag,” is therefore calling for the setting up of a master plan. We talked to Reinhard Quast, President of the Zentralverband Deutsches Baugewerbe (ZDB, German Construction Federation).

About the interview partner

Reinhard Quast, 62, a graduate engineer, was elected as President of the ZDB in November 2018. Quast is Chairman of OTTO QUAST Bau AG, a building company which employs around 600 people at five locations in Germany and Poland. The ZDB, with around 35,000 members, is the largest and oldest building association in Germany.

The interview

What are the key demands of the master plan?

One key point is the release of land for building. This has become the bottleneck in residential building. There are too few plots coming onto the market now and there is no change in sight in the coming years. A shortage of land for building and rising prices for plots—sooner or later that means the market will simply “dry up.”

For many years it has been clear that there is a lack of affordable housing in the cities and larger urban areas. Why has nothing, or too little, been done about this so far?

That is easy to answer: Quite simply too few apartments have been built, above all in the affordable segment and in social housing. As part of the federalism reform in Germany, responsibility for this passed to the individual states. In the period from 2006 to 2015 they received over EUR 500 million per year to invest in social housing construction. After that the subsidy rose to a billion, and most recently it reached EUR 1.5 billion. After 2019 such a subsidy would no longer have been possible. As a result the Constitution has now been changed and the annual subsidy has been pegged at EUR 1 billion. On the other hand only a few states have actually used this money for the construction of social housing; so today the situation is still that the number of apartments ceasing to be bound to social rents exceeds the number of new ones being built.

Rents keep going up, and the rental cap seems to so far have been largely ineffective …

The first thing to point out is that rents are rising in particular in the case of new lets and after renovation. Here what you are seeing is in the end the market principle: Supply and demand determine the price. Demand is high in urban areas, and supply is low. So the price rises. An increase in supply is the only way to alleviate this situation and bring prices down. The supply increases when investors receive at least an acceptable yield. If the rules are too tightly drawn, investment falls. The cap on rents helps little here, also because tenants are happy to have any apartment at all, and do not take legal action against rents that are too high.

Familiar cost-drivers also include high plot prices and a lack of building land. What can be done about this?

Here the onus is on the local authorities, but also on the Church, Deutsche Bahn, the Bundeswehr and also the federal government to make land that they own available for building homes in the urban areas. The Building Land Commission in the Federal Ministry of Building presented suggestions on this at the beginning of the year. These proposals are a good basis for making progress in the question of building land. These must now be implemented—and quickly.

Fast-acting solutions are what’s needed. Increasing the density of development and building more multi-story apartment blocks —are these really suitable measures for getting to grips with the problem in the short term?

Questioning the limitation on eaves height and building higher does create space when building apartment blocks, and it reduces the costs per apartment for the plot. Encouraging loft conversions can also help produce more apartments in inner cities. And integrating the towns in a ring around the city into an attractive local public transport network can persuade more people to live outside the city centers and to commute to work.

What does “affordable” actually mean and how high is demand for such apartments?

The definition of affordable differs of course. In Munich, for example, rents seem affordable that in other, especially rural areas, would not be acceptable. But broadly speaking, affordable rents for apartments are considered to be around EUR 7.50 per square meter, with social housing the rents should not exceed EUR 6.50 per square meter. The Verbändebündnis estimates that there is a shortfall in social housing Germany-wide of approximately 80,000 units.

Despite this shortage in new social housing, the building sector is booming and order books are full. Is the building industry at all capable of meeting this high demand?

In spring 2019 building approvals fell yearon- year for the first time in years. That indicates that the peak of the building boom could now have passed. In contrast to some public pronouncements, the small and medium-sized building companies— which are responsible for around 90 percent of all residential construction in Germany—are indeed capable of meeting this demand, even without prefabrication. Because these companies have invested in employees and in equipment. The cooling off in the economy will also release capacity from the construction of commercial and retail space. We are now back to a total of around 850,000 employees in the sector, and our SMEs are training more people. For years we have seen a clear rise in the number of new traineeships.

Published on September 19, 2019