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An apartment building in Berlin
The German federal government has made a significant move by reviving the instrument of non-profit housing, a scheme that was buried 24 years ago. This decision, part of the Annual Tax Act passed by the Federal Cabinet last week, aims to address the chronic shortage of affordable housing in Germany.
The reintroduction of non-profit housing, also known as “residential non-profit status,” or Wohngemeinnützigkeit, promises to offer substantial benefits to investors, housing companies, and tenants alike. REFIRE has featured a number of articles in recent months showcasing opportunities for investors to gain access to qualifying schemes, and we're keeping a close eye on developments in the sector.
The return of non-profit housing
The concept of non-profit housing is not new in Germany. It has existed in various forms since the mid-19th century, reaching its peak in the 1920s and the post-World War II era. However, the scheme was abolished in 1990 as part of broader tax reforms, amid scandals such as the one involving the housing construction company “Neue Heimat,” which was plagued by self-enrichment and mismanagement.
Fast forward to 2021, the coalition agreement between the SPD, Greens, and FDP included plans to revive non-profit housing. The newly passed Annual Tax Act 2024 now formalises this intention. Federal Building Minister Klara Geywitz (SPD) announced, “Residential non-profit status is back! I am delighted that we have succeeded in implementing this important project from the coalition agreement.”
Key points of the new agreement
The reintroduced non-profit housing status aims to provide tax relief to socially oriented housing companies, associations, and charitable foundations. The key points of the new agreement include:
Tax Reliefs: Eligible housing companies will receive permanent tax exemptions or reductions in corporation tax, trade tax, property tax, and land transfer tax. The estimated relief ranges from €1,000 to €2,000 per apartment per year, potentially saving a company with 300 apartments around half a million euros annually.
Income Limits: The income limits for tenants are set to benefit around 60% of households in Germany, with limits approximately five times higher than those for social housing entitlement.
Rental Conditions: To qualify, housing must be rented out significantly below the local comparative rent. This ensures that the rent remains affordable for low-income tenants.
Long-Term Planning: The scheme includes provisions for building up reserves for long-term investment projects, even if specific modernisation or new construction projects are not immediately identified.
How does non-profit housing work?
Non-profit housing companies commit to offering housing at rents significantly below the market average. In return, they receive tax benefits that help offset the financial disadvantages of price-controlled letting. This model is designed to create a sustainable supply of affordable housing by incentivising companies to maintain lower rents.
Minister Klara Geywitz emphasised the importance of this scheme: “In addition to social housing construction, we are creating another strong pillar for more affordable housing in our country with the non-profit housing scheme.”
Beneficiaries: investors, housing companies, and tenants
The reintroduction of non-profit housing is poised to benefit various interest groups:
Investors: With the promise of tax reliefs and a stable tenant base, investors might find non-profit housing an attractive option. The scheme could also open opportunities for large companies from other sectors to provide affordable housing for their employees.
Housing Companies: Companies that commit to the non-profit model can enjoy significant tax savings, allowing them to invest more in their properties or reduce rents for tenants. Axel Gedaschko, President of the German housing industry association GdW, called the instrument a “sensible addition in the fight against the housing shortage.”
Tenants: Low-income households stand to gain the most from this scheme, with access to affordable housing being a critical need in many urban areas. Around 105,000 tenants could benefit from the regulation, which targets households earning no more than five to six times the social assistance rate according to SGB XII.
The pros and cons of non-profit housing
Proponents argue that non-profit housing offers a sustainable solution to the housing crisis by ensuring long-term affordability. Unlike social housing, where the obligation to keep rents low expires after a certain period, non-profit housing maintains low rents permanently. This model can also provide stability in the rental market and prevent sharp rent increases.
Urban researcher Sebastian Schipper highlights another advantage: companies adhering to the non-profit model can be prioritised for building land through public real estate policy, fostering the development of affordable housing projects.
Critics, however, point out potential downsides. Sandra Weeser, FDP Member of Parliament, argues that directing tax money towards these projects might result in funds being funnelled into “marginal projects” rather than broader solutions. The German Tenants’ Association also expressed concerns, with President Lukas Siebenkotten stating, “The federal cabinet has only agreed on a ‘mini public housing benefit.’” Siebenkotten criticised the lack of investment subsidies, which could limit the effectiveness of the scheme.
Alternatives to non-profit housing
While the reintroduction of non-profit housing is a significant step, there are other potential measures to address the housing shortage:
State-Built Housing: Municipal housing associations can control rents and determine tenant eligibility.
Favourable Loans: Providing low-interest loans through development banks like KfW can encourage the construction of affordable housing.
Streamlined Approvals: Reducing bureaucratic hurdles and accelerating the approval process for new constructions can help increase housing supply.
Affordable Land Allocation: The state could allocate land at lower prices or for free, with conditions to keep rents affordable.
Serial Construction: Emphasising low-cost, prefabricated building methods can reduce construction costs and speed up the delivery of new homes.
REFIRE: The revival of non-profit housing in Germany marks a significant shift in the country’s housing policy, aiming to create a more robust framework for affordable housing. While there are both advocates and critics of the scheme, its reintroduction offers a glimmer of hope for addressing the housing shortage.
As the federal government moves forward with this initiative, REFIRE will be monitoring its implementation and effectiveness in providing long-term affordable housing solutions. This coalition government so far has been strong in grabbing headlines for its various schemes, all the more so as we get nearer to new federal elections. But it has been miserably short on real effective action. This scheme does offer hope, though, and we'll be tracking it carefully.
