Lobachad/Envato
Rural and semi-urban areas could benefit from renewed interest as families and investors look for more affordable alternatives to new builds in expensive urban centres.
The German government's newly launched “Young Buys Old” initiative has been making headlines in the property world, particularly as it offers a potential solution to the country's chronic housing shortages and stagnant home ownership rates. Announced in early September, this programme aims to support families in acquiring and renovating older residential properties through subsidised loans. But will it be enough to turn the tide for Germany’s notoriously low rate of home ownership? For international investors and developers, the initiative offers both opportunities and challenges worth exploring.
The programme, officially launched by the Ministry of Construction under Klara Geywitz (SPD), is a key part of the federal government's strategy to increase home ownership, which remains far below the European average. With just over 46% of Germans owning their homes, the country has the lowest home ownership rate in the EU, with only Switzerland trailing behind in Europe. This programme represents a shift in Germany’s approach to real estate, which has traditionally favoured renting over ownership.
In a market where house prices are soaring and building permits for new properties are plummeting, “Young Buys Old” offers families with modest incomes a chance to buy and renovate older homes. This strategy is being positioned as a win-win: revitalising rural areas with declining populations while tackling the acute housing shortage in urban centres.
Background to the initiative
The German property market has been facing significant challenges, exacerbated by high inflation, soaring construction costs, and a steep rise in interest rates. These factors have made it increasingly difficult for families to afford new homes, and building new properties has become prohibitively expensive. According to the Federal Statistical Office, the number of building permits issued for single-family homes in Germany fell by 30.9% in the first half of 2023 compared to the same period last year.
In response to these challenges, the federal government’s coalition—comprising the SPD, Greens, and FDP—has been working to find creative solutions. The "Young Buys Old" initiative is an extension of earlier programmes that subsidised the purchase of new energy-efficient homes. The latest iteration, however, shifts the focus towards existing properties, offering low-interest loans to families willing to buy and renovate older houses.
Qualification for the programme
The programme is specifically aimed at families with at least one underage child and a taxable household income that does not exceed €90,000, plus an additional €10,000 for each child. Only families that do not already own a home and have not received federal home ownership subsidies in the past can qualify.
The purchased property must meet certain energy efficiency standards—or be renovated to do so within a set timeframe. Buyers have 54 months to upgrade the home to at least the EH70 energy efficiency level, which means the house consumes no more than 70% of the energy used by a standard new build. Renovations can also be supported by additional subsidies under the Federal Subsidy for Efficient Buildings (BEG).
The loans offered under this programme are designed to be attractive. Families can borrow up to €100,000 for one child, €125,000 for two, and €150,000 for three or more children, with terms ranging from seven to 35 years. The interest rates, according to KfW (Kreditanstalt für Wiederaufbau), will be "significantly lower than market rates," starting as low as 1.51% for a 35-year loan with a 10-year fixed interest period.
But despite the apparent benefits, there are concerns that the programme’s stringent energy efficiency requirements and relatively modest loan amounts may deter families from participating. Matthias zu Eicken of the property owners' association Haus & Grund Deutschland praised the initiative’s goal but criticised the efficiency standards as too high. "Young families will hardly be able to afford [the renovations] even with the subsidy,” he noted.
Potential hurdles - rising costs and skilled labour shortages
One of the major hurdles facing the success of this programme lies in the cost and complexity of renovations. While the idea of purchasing a cheaper, older home is appealing, the reality of bringing it up to modern energy standards is daunting. Construction costs have surged to unprecedented levels, with materials such as windows and steel continuing to rise in price. A Federal Chamber of Architects study noted that the average cost of building a new home in Germany has now reached €5,000 per square metre, and many of the same cost factors apply to refurbishing older properties.
Furthermore, there are concerns about the availability of skilled labor. Germany is already grappling with a shortage of tradespeople capable of completing energy-efficient renovations. This has the potential to cause significant delays for families trying to meet the programme’s 54-month renovation deadline. Florian Nagler, an architect specialising in affordable building practices, has called for a relaxation of rules on older buildings to make renovations more feasible. "Many of these buildings have functioned perfectly for decades," he said, "and shouldn’t be subject to the same standards as new builds."
If these issues are not addressed, the cost and complexity of energy retrofits could dissuade families from participating, which would stifle the programme’s potential impact.
Opportunities for investors
For real estate investors, “Young Buys Old” offers intriguing opportunities. Investors with expertise in refurbishing and upgrading older properties could partner with families to bring these homes up to modern standards. This initiative taps into the significant housing potential lying dormant in Germany’s aging housing stock, especially in rural areas where nearly two million homes stand empty.
There is also the possibility of combining multiple subsidies, such as those for energy efficiency upgrades, which could offset some of the renovation costs and make investment in older properties more attractive. Rural and semi-urban areas, which are often overlooked by large developers, could benefit from renewed interest as families and investors look for more affordable alternatives to new builds in expensive urban centres.
Dirk Wohltorf of the German Real Estate Association (IVD) suggested that a reform of the real estate transfer tax could further incentivise climate-friendly investments in these older properties. If paired with initiatives like "Young Buys Old," such reforms could unlock a wave of investment in under-utilised properties, particularly in areas that are otherwise struggling with population decline.
Can "Young Buys Old" Deliver?
While the initiative has the potential to revitalise large swathes of Germany’s aging housing stock, the programme’s success hinges on addressing several key challenges. The high costs of renovation, coupled with stringent energy efficiency standards, may prove insurmountable for many families, even with the government’s support. Likewise, delays caused by the scarcity of skilled labor could dampen enthusiasm for the programme.
On the other hand, if these obstacles can be mitigated, "Young Buys Old" could pave the way for a more sustainable housing market. By focusing on existing properties rather than costly new builds, the government may be able to address both housing shortages and environmental goals simultaneously. For investors willing to engage in this evolving landscape, the programme offers a unique opportunity to tap into a market segment that has long been overlooked.
The German housing market is facing an inflection point, and "Young Buys Old" may just be the catalyst needed to shift the balance from stagnation to revitalisation. Whether the programme will live up to its potential remains to be seen, but one thing is clear: for families and investors alike, the opportunity is there for those willing to seize it.
