The German government has announced definitive plans for the introduction of new subsidies to promote home ownership rates in Germany, following the phasing out of its Baukindergeld programme at the end of 2022.
The planned €350m in subsidies are exclusively targeted at families with at least one minor-age child and where the gross family income does not exceed €60,000 annually. Each additional child would permit the income threshold to rise by €10,000. The subsidy would take the form of loans of between €140,000 and €240,000 at preferential interest rates, managed by state-owned bank KfW.
The new programme is restricted only to the sale of new-build housing, and does not permit the buying of existing properties. Qualifying properties must be for the applying family's own use, and must meet minimum standards of climate-friendliness (KFG).
The previous Baukindergeld subsidy programme ran from Januar 1st 2018 to the end of December 2022. It had been widely criticised as an instrument for promoting home ownership on the grounds of being too expensive and inappropriate. In contrast to the latest programme, it permitted the buying of second-hand properties, which turned out to be largely the case, particularly in rural areas and in regions with shrinking populations.
Over its lifetime it dispensed subsidies of €9.9bn. A recent analysis by the Institut Wohnen und Umwelt showed more than 50% of recipients were those earning between €30,000 and €60,000 , while about a quarter of recipients earned below €30,000. At the lower income levels, more than half of respondents said the subsidy was 'largely responsible' for their decision to acquire property.
As we report elsewhere in this issue of REFIRE, residential construction in Germany has partly ground to a halt. Construction, Urban Development and Housing Minister Klara Geywitz said last week that the new subsidies programme should be ready by June 1st this year, despite the gloomy prospects for the building industry. She said she expects applications for the home loan subsidy to be lower than during the period of the Baukindergeld, not least because of higher overall lending rates, and personnel and capacity bottlenecks in the building industry.
She ruled out calls for additional subsidies to overcome the effect of these shortages, saying, "I don't see a direct link between subsidies and completions,. If there were, we should have had incredibly high new construction in 2022. That's because in the years leading up to that, billions were paid out in new construction through the Federal Efficient Buildings Grant (BEG), and the trend was upward. But that didn't translate into rising completions at all."
When the government gives a lot of incentive money to a market "with limited capacity," it doesn't necessarily lead to higher unit sales, she said.
She added that "Some players hadn't always used government stimulus money for favourable rents either, but may have used it to increase their own project margins." She referred to the €14.5bn the federal government is allocating to social housing through 2026, which are expected to be "100% drained", and a new housing community benefit, details of which will be presented in March.
The most recent half-yearly survey by the Bauherren-Schutzbund (BSB), a nationwide association of real estate professionals advising potential and existing homeowners on property matters, showed consumer sentiment towards home ownership sink to a new all-time low. The latest barometer reading fell to 25 points (out of a possible 100).
Whereas in February last year, one in three respondents considered available financing conditions to be 'good', that figure has now dropped to 12.5%, after the effective tripling of borrowing costs since then.
BSB spokesman Florian Becker said the government missed the boat last year in attempts to promote new housing construction and boost home ownership last year. However unrealistic it may now look, he said, for the government's own self-imposed target of 400,000 homes annually to be met, about 150,000 would have to be built by owner-occupiers. Their incentives in the current climate to reach that goal were diminishing daily, he said. With the number of potential and willing homeowners now abandoning their dream of building their own home at a new high, asks Becker, who, therefore, will build these new homes?
