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The never-walk-alone state will fail on the housing market

If even the always market-liberal Institute of German Economics in Cologne (IW) approves of state subsidies through special depreciation, then something is in trouble on the German housing market.

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The never-walk-alone state will fail on the housing market

If even the always market-liberal Institute of German Economics in Cologne (IW) approves of state subsidies through special depreciation, then something is in trouble on the German housing market. Inflation, rising interest rates, supply chain problems and the looming recession. WELT real estate expert Michael Fabricius has impressively described the condition here. 400,000 new apartments every year: the social democratic promise in the 2021 federal election campaign is becoming a distant prospect.

Calls for the state like a strong special depreciation are popular, a bang or double bang more, what the heck. But where is the never-walk-alone state leading with ever new guardrails on the housing market?

The previous fueling of the real estate boom plays a decisive role in the historic slump. And thus the European Central Bank: Its policy of covering up political mistakes in the construction of the euro zone with extremely low and negative interest rates has artificially heated the market for many years. Asset price inflation made owners who bought on time rich, at least on paper. The consequences for heirs are currently being discussed.

Owners and investors who bought in at high prices shortly before the peak of the cheap-money-fuelled boom will be the first to be left behind. Some of them have short-term financing or no loan agreement for their construction project. Recently, the real estate boom has also put pressure on rents.

For years, market observers warned of overheating, especially in popular inner-city locations. And before a sharp increase in inflation. Even if Federal Chancellor Olaf Scholz justifies the rise in prices at every opportunity solely with Russia's war of aggression and the (interim) rise in energy costs, the role of the politically well-loved money printing machine in Frankfurt is obvious.

And also that the ECB, despite warnings, let the train run almost unchecked against the wall by raising interest rates much too hesitantly. The withdrawal of the sweet poison was half-hearted. A look at non-EU neighbor Switzerland shows that key interest rates can be raised sharply even if inflation is still moderate.

Instead of ensnaring investors in the inflation crisis in construction alone with a special depreciation and careful reduction of bureaucracy, it is important to take a look at the very important framework conditions. A long-term investment such as the creation of living space requires one thing above all: trust. Confidence in Germany as a real estate location.

The Red-Green-Red Senate in Berlin demonstrated particularly impressively that this trust can be destroyed within a few years for ideological reasons or pure dilettantism. Housing was the central issue in the past election campaigns, but the government failed miserably in implementing it - for example with the rent cap, which was overturned by the Federal Constitutional Court. And the voter? Don't even sanction it.

The traffic light coalition in the federal government is meanwhile struggling to limit the possibilities for rent increases in tight housing markets. If there is a passage in the coalition agreement, landlords may increase current rents there by a maximum of eleven percent within three years - and that with an annual inflation rate of currently ten percent. Rents in the statistical basket are already having an inflation-lowering effect. A further lowering of the cap limit with inflation-related rising costs for landlords is like state expropriation through the back door.

The legislature rightly distinguishes between existing and new properties. But what can landlords, whether housing associations or the majority of small landlords, still rely on – in a country that far too often puts ideology-driven politics ahead of economic reason?

In the 1990s, the “special depreciation in the east” led to a series of bad investments in the new federal states. Not only a lot of money from small investors was lost at that time. Above all, what is needed today more than ever: Confidence in a healthy, growing market without constant political intervention.

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