Germany needs 50% more homes to house migrants

The German government expects 800,000 migrants to flee to Germany from the Middle East by the end of 2015 and they will need homes. Tranio investigates how much property the country needs to house these new refugees and what measures the German government has already put in place.

The recent stand taken by Germany's leader Angela Merkel to accept as many refugees as possible has also been accused of attracting even more migrants. With rising house prices and high density already on the territory of Europe's leading economy, the country's task to accommodate these new migrants will not be easy.

Doubling the construction rate

While the country only planned to accept about 200,000 migrants in early 2015, the now expected 800,000 arrivals by the end of the year will give the government little choice but to ramp up public spending and construction.

Germany will have to increase the pace of construction for public housing from the current 240,000 to 400,000 new homes a year in order to handle the increasing influx of migrants from the Middle East, says a new report by the Eduard Pestel Institute for Systems Research (IPS) published in September.

Experts at the Berlin Institute for Urban Development, the Housing Industry and Loan Associations shared similar forecasts earlier in spring this year expecting Germany to need a extra 420,000 new homes per year.

Bringing down the housing market

Analysts at IPS note that, besides increasing the construction volume, the state will have to reduce the average rental rate for social apartments to €7.5/sq m – from a current average of €10.0/sq m – to make it affordable for both refugees and the federal government who subsidises their rent.

Against this backdrop, the German Masonry Construction Association urged the German federal and local authorities to give more support to private social development initiatives. Experts estimate the total subsidies required to house the migrants should be €3 billion to €6 billion.

Creative policy thinking

Germany’s experts are also calling on the government to encourage mid-income earners to buy more expensive housing so as to free up more affordable housing for migrants. And that’s only the beginning. As more think tanks and government agencies get to grips with the economic reality of this situation, the necessary short-term provisions may leave Germany in a long-term rut.

The Munich-based Institute for Economic Research proposed reducing the minimum wage nationwide because the arriving refugees are not adequately qualified to be absorbed by the German job market nor to perform sufficiently for the minimum rate (€8.5/hour). Encouraging employment rather than handouts could reduce the financial burden on German budget and soften the baby-boom demographic slump over the long term. However, in the long term, a lower minimum wage could bring down salaries for everybody and hinder purchasing power.

Strong-arming the opposition

Meanwhile, the local authorities are still working on housing the migrants that have already arrived. Deputies of the Hamburg parliament proposed forcing owners of vacant commercial properties to use these premises as temporary accommodation after the authorities of Tübingen, Baden-Württemberg, asked their citizens to lease their vacant property to refugees. This offer was not without threat and local authorities also reminded inhabitants that they have the right to seize vacant premises by law, a instance which is not without precedent: in North Rhine-Westphalia a hotel in Olpe was seized by local authorities in February 2015 to house 400 migrants.

These strong-armed tactics have not attracted much support from Germany business community in some regions and experts urge caution as radical proposals could damage the interests of the whole country. Particularly since the economy is still reeling from the Volkswagen crisis: investor confidence sunk to just 1.9 points, its lowest level since October 2014, from 12.1 last month according to ZEW economic institute, a think-tank.

Penny-wise construction standards

The fact that these urgent measures will not resolve the overall issue is no secret. At least €60 billion will be needed over the coming decade to eliminate the housing shortage according to estimates by Aengevelt Immobilien, a German real estate company. Its director Wulff Aengevelt echoes this sentiment: “The public sector can’t afford to spend that much.”

Additional measures are being worked on, some of which may not appreciated by the green-minded citizens, like the loosening of Germany’s energy efficiency standards for residential housing developments. This measure would reduce the cost of construction (34% higher on average in Germany, than in Europe) but would also go against one grain that Angela Merkel, ex-minister for the environment, has been championing: cutting carbon emissions in developed countries.

Germany’s real estate future

It is yet to be seen how the events in the Middle East will transform the German real estate market, but there are a few points upon which experts agree:

• The huge influx of migrants generates additional demand on the affordable rental housing market that was already under pressure and in short supply.
• Construction volumes have to increase to accommodate the enormous number of expected migrants.
• The government will likely ease construction standards and introduce additional measures encouraging private investors.
• Refugee accommodation subsidies may continue for years as the government figures out how to integrate new arrivals onto the job market.

Ivan Chepizhko, Tranio