Rivalry in the rental market is the primary factor keeping prices in check.
The deplorable state of the housing market in Germany is fueling support for far-right extremists, as per the top official from the real estate industry. This is according to Iris Schöberl, the newly appointed President of the Central Real Estate Association (ZIA), in an interview with ntv.de. She discusses her confidence that the crisis can be addressed at this moment.
ntv.de: You've been elected as the President of ZIA during a period when Germany is debate housing shortages and construction crisis. What's the view of the situation among you and your member companies?
Iris Schöberl: ZIA encompasses the entire range of the real estate sector, from architects, developers, construction companies to investors and property owners, across various property market segments like residential, office, logistics, and healthcare real estate. Naturally, there are differing viewpoints. For instance, logistics real estate remains popular. Residential construction companies, however, are currently grappling. Developers express a certain resignation, and overall, there's a sense: "Now more than ever." People must adapt to the current conditions, particularly high interest rates, and make the best of the situation.
Is it the residential sector that's in the worst shape?
It depends on the viewpoint: For investors and property owners, as well as current tenants, the housing market appears favorable. However, it's a challenge for those seeking housing. People looking to move find no housing in Germany due to inadequate construction.
You mentioned high interest rates as the cause of the dwindling housing construction. Yet, wasn't there enough construction even when interest rates were low?
When money was abundant due to low interest rates, the public sector - responsible for allocating building land and granting building permits - imposed increasingly stringent requirements and took too much time. Building permits took and take far too long. One felt that one could afford it. Builders eager to construct were content if they could secure a building permit. This led to inadequate construction and soaring costs. And now? I believe everywhere, the gravity of the situation has become apparent, and we should focus on creating sufficient living space. New ideas are emerging on how to do it faster. However, financial resources are now scarce due to increasing interest rates. Therefore, construction costs must be drastically reduced.
You speak of a housing shortage as a central social issue. Following the European election, there's been extensive discussion about the reasons for political disillusionment and the shift towards the far-right. The issue of housing shortages and rising rents did not come up. Is it still being underrated?
I believe the significance is still being underrated. I've seen surveys in which people cite affordable housing as their main concern, even before the Ukraine war and high energy prices. Many see the housing shortage as a failure of the state. It benefits extremist parties when people feel that politicians responsible for them do not care. That it played a minor role in the election campaign surprised me.
Over the causes - especially rising construction costs due to excessive bureaucracy, a lack of building land - we've talked about this for so many years. Politicians at the federal and state levels agree on this. But implementation must come from the responsible municipalities, and it seems nothing is happening there.
Because it's going well for us. I'm not only referring to the real estate industry, but also the municipalities. They could rely on the fact that so much money was pouring into real estate because investors were prepared to shoulder more and more debt. If a commune designates a new building area, it will even pay for the school and kindergarten for the developer. Of course, this has escalated costs. The most regrettable aspect is that when a mayor seeks re-election, designating new building areas or densification is not popular. Everyone complains about the housing shortage, but no one wants new building areas or densification in their own neighborhood. The decision-makers, who this affects, have no incentive.
So, what should be done? Can this impasse be resolved at all?
I am optimistic that something will change. Because it's not just damaging the real estate industry, but also politics. You can see that in the election results. And from this pain, I hope the realization will come.
But at the federal and state political level, this realization is already present. But they are not directly responsible.
They are often part of the same parties as the mayors. Federal and state ministers should also exert additional pressure on their grassroots party colleagues and highlight their responsibility for society as a whole. I hope for greater openness - and not just for housing. In addition to housing, we have the second major theme of vacant commercial properties in city centers. We urgently need strategies for how we can utilize them effectively. But the potential investor is nearly impossible due to economically unattainable requirements.
Why is it so difficult? Revitalizing city centers should be in the interest of municipal authorities.
The primary cause for this excessive bureaucracy and the stagnation of the economy in a time when we need change in many ways in Germany is likely the immense need for security. The responsible official may have concerns about violating rules or exceeding competencies. I strongly advocate for transferring competencies from the mayors to the responsible experts, so they can make exceptions.
The excessive need for security - rather, not doing anything than making a mistake or exceeding competencies - is probably the central issue behind the much-lamented bureaucracy and the stagnation of the economy in a time when we need change in many ways in Germany?
Societal issue highlight: People fear losing their jobs due to approving new initiatives, opting instead to prolong the process indefinitely and repeatedly seeking reevaluation to prevent potential risks. This stifles economic growth and society's progress.
A key demand of yours, previously mentioned, is to reduce construction costs, mainly by simplifying regulations and expediting building permits. However,why should landlords pass on these cost savings when they can almost fill every apartment at high prices in the current market?
It's assumed that landlords solely focus on short-term profit maximization. Yet, they also value low tenant turnover. High rents result in increased turnover. Building more apartments is the key to keeping rent low, and competition is the driving force. To achieve competition, one needs to introduce multiple apartments into the market. When shopping at a discount store, consumers are able to buy cheap items due to fierce competition between big retailers. Similarly, only by building massively can rents decrease.
The real estate industry has a poor reputation. During the era of cheap money, investors made substantial profits without producing any real value for society in the form of affordable housing, as perceived by the public. How can your industry, the ZIA members, make a positive contribution during this crisis?
I personally have invested approximately 1.5 billion Euros in apartments for pension funds. These aren't parasites. It's crucial to remember that retirement savings - possibly even your own - are invested in the real estate sector. It should not engender embarrassment to work in the real estate industry. In Berlin, for years, investors have referred to the expropriation debate: "We don't want to invest our money in Berlin." As a result, construction has boomed in the surrounding areas.
The mood in Berlin has significantly improved since the shift from a Red-Red-Green to black-red government. The industry can take action by showcasing our positive contributions more transparently. ZIA members have established codes of conduct. While we can't prevent unethical landlords from engaging in questionable practices such as turning off heating in winter, these occurrences are rare at member companies and among responsible investors.
Max Borowski interviewed Iris Schöberl.
