Economists call for more public housing

Düsseldorf, 2.3.2020. The federal government can give new impetus to public housing construction in Germany in the short term and thus help to ease the acute housing shortage in many large cities. The key to this are three federally owned companies that flexibly support Länder and municipalities in the development of construction projects and the construction of new housing: First, a consulting company that provides planning capacities to cities and municipalities. Secondly, a land fund that helps municipalities nationwide financially and conceptually to acquire building land and finance infrastructure. Thirdly, an investment company that strengthens the equity of municipal housing companies through financial participation. This is shown by Prof. Dr. Sebastian Dullien, Scientific Director of the Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation and Prof. Dr. Tom Krebs of the University of Mannheim in a new concept for an Federal initiative "Future Housing.*

The initiative is primarily intended to ensure that more housing is built. Other goals are: a stronger social mix in cities, the promotion of ecologically sustainable construction and a reduction in construction costs. "These goals can only be sensibly achieved by centralising certain elements of housing construction," the economists write. However, the close cooperation of the federal companies with the local administrations and housing associations would also incorporate the special expertise on the ground. The initiative could "start practically immediately with relatively small volumes", the economists write - and already achieve "a noticeable increase in public housing construction in the initial phase." According to the researchers' calculations, around 90,000 additional flats could be built in the short term with ten billion euros in federal funding. In the medium term, the model would be scalable as desired, depending on how many flats are needed in the coming years and decades.

The demand for new buildings is estimated to be at least 330,000 flats per year in Germany by 2030. However, only about 285,000 new dwellings were built per year recently. "New housing construction in Germany must therefore be further increased to meet long-term demand," the researchers write. "This should actually argue for a massive expansion of public housing promotion, but until recently the opposite was the case." This becomes particularly clear when looking at the stock of social housing: While there were still 4 million social housing units in the early 1980s, today there are only 1.2 million. Every year, about 80,000 social housing units are no longer subsidised and only about 25,000 new ones are built. "The housing shortage has negative macroeconomic consequences because people cannot realise their productivity potential," write Dullien and Krebs - for example, because they have to reduce their working hours if long journeys from the surrounding areas are necessary. "In addition, segregation and ghettoisation occur, which impairs educational opportunities."

According to Dullien and Krebs, the federal companies can solve bottlenecks that, in the view of many experts, massively hinder the necessary large-scale new construction of affordable and high-quality housing at the same time. For example, after many years of staff cuts, many municipalities have too few skilled workers in their building administrations to process applications quickly or to develop building areas. Financially weak cities and municipalities sold building land in their ownership to the highest bidder for a long time, who then often built mostly high-priced flats. Municipal housing associations remained far below their means in many cities.

The consultancy would support municipal administrations in the development of housing and district projects. Such projects are often highly complex and require the participation of many experts: engineers, urban planners, property developers, economists, cultural scientists, humanities and social scientists, geographers and landscape architects all have to work closely together. In addition, complicated financing questions have to be answered and public relations work has to be done. In many cases, the municipalities are overwhelmed by this. A company at the federal level that specialises in the development of residential neighbourhoods could make its expertise available when needed - similar to what the city of Hamburg, for example, has practised at the state level with the founding of HafenCity Hamburg GmbH. This company - a wholly owned subsidiary of the city - has taken care of the planning and management of the HafenCity district.

One of the prerequisites for a housing policy oriented towards the common good is that land remains in public hands. The land fund is intended to provide the financial means for this. Thanks to the fund's support, municipalities could afford to keep or even buy building land instead of leaving it to investors. Currently, pre-emptive rights at the municipal level are often not used because the municipalities either lack the money to purchase the land or lack the funds for public use in the near future. In addition to financial contributions, the land fund could also contribute land from federal property and organisational know-how.

The equity fund would strengthen municipal housing societies financially by increasing their equity and support municipalities or Länder in establishing public housing societies. Although many municipal housing societies have recently expanded their construction activities, some are still holding back on new construction in order not to lower their equity ratio too much. Low equity ratios lead to higher financing costs for construction loans. Increasing equity with funds from the equity fund would ease the situation for public housing societies.

According to Dullien and Krebs, the three federal companies should be legally independent entities that are wholly owned by the public sector. In addition to the usual supervisory bodies, there should also be a scientific advisory board made up of representatives of professional associations and the scientific community. The capital stock of the companies would essentially be financed by the federal government. Financing these companies through loans would be a "financial transaction" for the federal government and would therefore not fall under the rules of the debt brake. The federal corporations could also raise money through external financing.

*Sebastian Dullien, Tom Krebs (2020): Wege aus der Wohnungskrise, IMK Report No. 156, March 2020. Düsseldorf

pdf download:
www.boeckler.de/pdf/p_imk_report_156_2020.pdf