“This is the biggest social explosive of the coming years”

Mr. Feiger, the economy is sluggish and the construction industry is said to be one of those most affected. What is the real situation?

Robert Feiger: The situation is not as bad as is often discussed in public. However, the construction industry is split. On the one hand, civil engineering is doing very well. Here we can see that the public sector is investing in transport routes, motorways and bridges. On the other hand, we are indeed seeing significant declines and problems in the area of ​​housing construction. The government's plans for 400,000 new homes a year – 100,000 of which are social housing – are falling far short of the target.

How many apartments do you expect to be completed this year?

Cowardly: According to recent calculations by the Pestel Institute, we will end up with around 255,000 apartments by the end of the year.

What are the reasons why the targets are still not being met?

Cowardly: There are several reasons. Since autumn 2022 – six months after Russia's attack on Ukraine – we have seen massive price increases for energy and raw materials. Inflation has also caused interest rates to quadruple. This is hitting construction very hard, where external financing by banks is widespread. Many approved construction projects have been left on hold due to the higher financing costs.

And the plans are still there?

Cowardly: In residential construction, many plans are still not being taken out of the drawer. This is particularly the case for single- and two-family homes. The classic home builder is waiting to see how interest rates develop. In the first half of the year, we had a shortage of building permits of 31 percent for single-family homes, around 15 percent for two-family homes and 21 percent for multi-family homes. Anything that has not been applied for and approved will not be built. Our current forecast for residential construction is therefore stagnation at a low level. We are very worried.

Are jobs in construction already at risk?

Cowardly: So far, construction companies have behaved sensibly and economically smart. They are trying to hold on to their personal interests and hope that the construction industry will pick up again, including in the housing sector. Despite everything, there is a shortage of skilled workers in the construction industry. Around 290,000 apartments were built in 2023, slightly less than in 2022. If we want to create the 400,000 apartments, we have to build up considerable capacity and hire people. The construction companies and employees are ready.

How long will the construction last during this dry spell?

Cowardly: Significant new orders will have to come in soon. The order backlog, which was very good from the good times, can still be processed and the employment situation is reasonable. The construction period is usually 18 to 24 months, after which new projects must follow.

What needs to happen to stimulate housing construction again?

Cowardly: If the goal is 400,000 apartments per year, you have to spend money in the classic way. We need a housing economic stimulus package. The federal and state governments must provide 20 billion euros per year for this. The federal government would have to provide around 17 billion euros, which is 13.5 billion euros more than is being provided for next year. Social housing needs just as much support as single- and two-family home construction. I know that it is a tough nut to crack for the coalition to provide more funds for social housing in light of the budget debate. The debates surrounding the heating law have further unsettled home builders, and we need more reliability when it comes to funding.

What would good support for housing construction look like?

Cowardly: Traditional multi-storey housing can be promoted through direct subsidies and tax incentives. We need traditional support from municipal housing associations that operate on a non-profit basis. There are also people who are not eligible for social housing but earn enough to buy their own home. To make the purchase affordable and more attractive for them, they need to be given tax incentives.

What about single-family homes?

Cowardly: The traditional home builder must be sure that he will receive a low-cost loan of a certain size from the state-owned KfW bank. He also needs to be sure of the subsidies he can expect if he meets certain energy standards that serve climate protection. One must also consider whether it is necessary to always meet 100 percent of what is technically feasible in terms of building standards in order to receive funding. The last ten percent of energy savings through even higher standards cause an average of thirty percent more costs. One must ask oneself whether this step still makes sense, after all we have already achieved a reasonable energy level in the new building sector. Only very few can afford the highest standard.

Was it a mistake to link the funding for new construction to a KfW 40 standard, whereby a house only consumes 40 percent of the energy of an average house?

Cowardly: In terms of the goal, this is not necessarily a mistake, but the extremely high standard also has a disadvantage. Energy savings must be made on a mass and area basis, not just in a few buildings that are well insulated but of which there are then few. The KfW standard 55, which means that a house only uses 55 percent of the energy of an average house, was already very good. Improving the standard to 40 is technically extremely complex and expensive. It is not just the promotion of excellence that helps, the general public must also have the chance to have an affordable roof over their heads.

Interest rates could soon fall again. Will the construction industry then automatically pick up again?

Cowardly: Many construction projects that have already been approved would get underway quickly at an interest rate of two to two and a half percent. We will reach this range in the next two or three years thanks to the ECB's key interest rate cuts. This period must now be bridged. The construction industry can be an economic locomotive. One euro of construction investment leads to six to seven euros of further investment.

Sometimes it seems as if politicians have already accepted that the goal of 400,000 homes will not be achieved. Are you disappointed?

Cowardly: I am disappointed because this is a major socio-political problem. We are short of 540,000 apartments in Germany. The housing shortage is the biggest social dynamite that will be present in the metropolitan areas in the coming years. And the political situation is already tense. If a family with two incomes and two children in the city has no chance of being able to afford an apartment, this will lead to even more dissatisfaction. We are warning against this.

Owning your own property has simply become too expensive…

Cowardly: Often, it is no longer possible to afford an apartment on a normal income. It is extremely difficult for skilled workers to afford an apartment. But everyone has to have somewhere to live.

The bricklayer should also be able to afford an apartment.

Cowardly: A construction worker should be able to live in the house or apartment he is building – and in such a way that it is still affordable.

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However, the federal government has to save money. Is it realistic to expect money for even greater housing subsidies? What was that?

Cowardly: The federal government is certainly struggling with difficult conditions caused by inflation, war and the energy price crisis. But if you want to solve the major social problem of the housing shortage, you have to do it within the current framework. This is only possible – and this is a clear criticism of Finance Minister Christian Lindner – if you spend the money on it. You can't just keep propagating the debt brake here. In the FDP's philosophy, the market rules everything. It rules, yes, but not affordably. We have proposed that a budget be set up outside the budget for social housing – a special art fund like the Bundeswehr.

In order to stimulate construction, the federal government will promote non-profit housing. Will this help?

Cowardly: Yes, I welcome that. The program helps non-profit municipal and state housing companies to get into a better economic position. Social housing can generate a certain return that flows into new projects.

Another approach is building type E, which has fewer requirements to comply with. Is this the right step?

Feiger: E for “simple”. Building type E has the potential to reduce construction costs. Energy standards or the number of sockets are not at the highest level. I think this is the right thing to do in order to create relatively affordable living space. And you don't have to worry about there being less safety in terms of fire protection or ceiling thickness.