Social Housing & New Builds: Increased ROI

When Michael Ammann began planning for the “Porzer Dukfel” in 2019, the board of the Rheinische Handwerk’s housing company still assumed an ordinary construction project. On an area in the Porz district of Cologne, where garages were previously stood, three apartment buildings were to be built – with 60 percent publicly funded social housing and 40 percent freely financed rental apartments. In the meantime, the houses are ready and rented, but there was a decisive change during the construction phase: all apartments are now social housing. Interested parties only had a chance with a living permit (WBS). “Freely financed, housing construction hardly pays off under the current conditions,” says Ammann.

Away from “normal” rental apartments, to construction projects with major or only social housing: The example from Cologne is not an isolated case. Due to the state and countries’ state funding, the construction of social housing is attractive despite the capped rents – often more attractive than that of apartments that were more expensive to rent. This should also stay that way for a while. When the cabinet recently the financial planning by 2029, construction minister Verena Hubertz (SPD) was one of the winners: the federal grants for social housing are expected to gradually increase from EUR 3.5 billion to 5.5 billion euros from 2028. In addition, there are funding provided by the countries.

For Michael Ammann, the trigger for the resolution of the increase in material costs in the course of the Ukraine secretary and the increase in interest rate level in 2022. “When we originally calculated the Porzer cube project, the conditions for freely financed and public apartments were similar,” he says: “The increase in interest rates completely got that to tip over.” In a quarter like Cologne-Porz, he could not request as a high rent that the increased construction costs actually necessary. Ammann was faced with the decision: go to social housing or not to build at all. He chose the former.

There is a “reliable funding setting” for social housing in North Rhine-Westphalia, praises Ammann and lists the advantages: “There are interest-bearing loans for construction costs of around 3500 euros per square meter-the first five years to zero, then another 25 years to 0.5 percent,” explains Ammann: “So you don’t have to pay any interest for 30 years. There is also one more Tilting grants of up to 40 percent. Even if he could request 14 euros rent for a freely financed apartment – interest rates for bank loan make the invoice unattractive. Social apartments also have the advantage that there is almost no vacancy. “And we have to build fewer parking spaces for these apartments.”

When the Kingstone Real Estate investment company reported the purchase of a construction project with 48 social housing in Weil am Rhein in February, this caused a sensation in the real estate industry. The special fund “affordable living in Germany”, for which the new building is intended, is advertised with an annual distribution return of four to 4.5 percent – a value that is otherwise more considered realistic to luxury apartments. It is new that such returns with social housing should be possible.

In the past, it was above all municipal or non -profit housing companies that built houses with a high proportion of social housing. Private investors were also free if they adhered to the requirements for rental and occupancy of the apartment. In practice, however, many left it to meet only the minimum requirements for the proportion of social housing that many cities today make it a circulation for new residential areas.

Construction Minister Verena Hubertz (SPD) sees that this apparently changes as a good development. “We want to create the turnaround and increase the existence of social housing in Germany,” she told the FAZ: “If more housing companies now build social housing, it shows that our measures take effect.” She does not see the risk that people with medium -sized incomes have left out: “One does not mean leaving the other. It is important to increase the overall offer on the market and get the construction industry going again. The funds for social housing and the special fund act as an anchor for stability for the industry.” The ministry has postponed several of its funding programs to the new special fund for infrastructure and climate protection that were aimed at building freely financed apartments. A total of eleven billion euros would be available for this in the coming years.

Michael Ammann observes the increasing interest in social housing with mixed feelings: “A lot of escape capital flows into this segment, the state funding pots are correspondingly overlooked. I think this is not a good development. Market participants are now also getting funding that has so far shown little interest in neighborhood care and long -term relationships with tenants.” He wants requirements like that that investors are not allowed to resell the social housing for a certain number of years.

What he also wants: better conditions for the construction of classic rental apartments, especially fewer government requirements. “What we urgently need is a departure from the KfW 40 standard,” says Ammann: “In practice, it does nothing, but is very expensive.” This means the Efficiency House 40, which, according to the criteria of the state sponsoring bank KfW, may only need 40 percent of the energy of a standard house. The construction of such a low -energy house is usually a prerequisite for the preservation of state subsidies. The legal minimum standard states that new buildings may need a maximum of 55 percent of the energy of a standard house. Many in the industry find that the cost-benefit ratio for the 75 percent permitted in front of it was better.

Individual federal states have already reduced their building standards. In Hamburg, for example, impact sound insulation on upstream balconies is no longer a must. The Federal Association of Free Housing and Real Estate Companies (BFW) is urging the introduction of the building type “E” already planned by the traffic light but no longer adopted. With it, builders should be able to deviate from expensive DIN standards without tenants being able to complain as a defect later. “Only when this is legally possible can the construction costs decrease and the rents afterwards can be reduced again,” says BFW President Dirk Salewski.

He also warns the temporary reintroduction of the funding for efficiency houses 55 agreed in the coalition agreement. “That would quickly lead to more living space.” In view of the already large budget gap, it is questionable whether this point of the coalition agreement will be redeemed. Before the then Minister of Economics Robert Habeck (Greens) stopped the EH-55 funding in early 2022, the federal government spent six billion euros a year for this type of house.