Could intergenerational flat swaps solve Germany’s housing crisis?

New proposals from politicians and housing experts are focussing on getting older renters to downsize in Germany - and help out younger families as a result.

Altbau - old building - apartments in the city of Munich.
Altbau - old building - apartments in the city of Munich. Photo: picture alliance/dpa/dpa-tmn | Karl-Josef Hildenbrand

Germany is currently in the midst of the worst housing shortage in 20 years, and rents in most major cities are continually increasing.

READ ALSO: Why Germany is seeing the ‘worst housing shortage in 20 years’

It’s an issue that has led experts and politicians to make all kinds of proposals in recent years – from bringing in rent caps, to encouraging people to move out of the cities and into the countryside.

Most recently, proposals have focussed on offering new options to older citizens and making changes to rental law that would affect older, cheaper, rental contracts.

One proposal, from the Green Party, is for senior citizens to have the option to swap their rental home with a family. The idea behind this is that, often, elderly people find themselves in homes which are too large for them to maintain and, in the current rental market, downsizing would often mean they would have to pay a lot more for a smaller apartment. 

READ ALSO: EXPLAINED: In which German cities are rent prices rising the fastest?

The Greens’ proposal would allow older tenants to easily swap their home for a smaller one with a family that needs more room.

Green Party politician, Caren Lay, has proposed the option be introduced into German tenancy law.

“This way, seniors can move into a smaller flat without ending up paying more rent,” she said.

A recent study on “housing in old age”, which was presented at the Bauma trade fair in Munich at the end of April, said that affordable housing for senior citizens is becoming increasingly scarce in cities, while families are often looking for more living space. It also called the impending housing shortage for senior citizens “alarming”. 

Scrapping old, cheap contracts

Another more drastic proposal has also been put forward this week by researchers from the Real Estate Institute of the University of Regensburg.

The researchers, led by economics professor Steffen Sebastian, propose that rents for holders of old, cheap contracts would have to rise significantly. This way, those who have lived in large flats for a long time and continue to benefit from cheap rents, would be pushed to move into smaller flats.

READ ALSO: EXPLAINED: How rents are changing in Germany’s five biggest cities

The researchers argue that there is currently enough living space in Germany, but that is just “wrongly distributed”.

“It cannot be that the state provides extreme protection for people who have been paying a low rent for decades, regardless of whether they are needy or not. And others simply can’t find an affordable flat,” Steffen Sebastian said when introducing the proposal.

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How high interest rates are hampering homeowners’ dreams in Germany

Rising interest rates are driving property developers in Germany into bankruptcy - and leaving would-be homeowners out in the cold. Will the government's latest plans to tackle the crisis be enough?

How high interest rates are hampering homeowners' dreams in Germany

Valeriy Shevchenko felt like he made the purchase of his lifetime when he beat a queue of prospective buyers to secure a two-bedroom apartment in one of Berlin’s most popular districts.

Two years on, the 33-year-old’s housing dreams have come crashing down after the developer of his new home, Project Immobilien, went bankrupt.

Hit by a sudden jump in interest rates and raw material costs, twice as many developers have filed for insolvency over the last year than during the previous 12 months.

Like hundreds of homeowners-to-be across the country, Shevchenko found construction of his new home suddenly halted, as workers cleared out of the site where the concrete skeleton of the building stands with no windows.

READ ALSO: Germany sees record drop in property prices

“From the middle of August, the construction was frozen. The cabinets for the workers here, the crane in the middle, everything moved away,” said Shevchenko at the site, shellshocked by the setback.

With such scenes multiplying across the country, Chancellor Olaf Scholz’s government on Monday offered a new package of measures to help ease the pressure on builders and homebuyers.

They include a pledge to not toughen up energy standards that could prove costly for developers, while extending mortgage help to families and financing for renovation.

The construction sector voiced satisfaction with the package, with Tim-Oliver Müller, president of German building lobby group HDB, saying that the measures were “more comprehensive than expected”.

‘All my savings’

For years, record low interest rates and strong demand had spurred new projects and investment in Germany’s property market.

But a sharp rise in consumer prices as a consequence of Russia’s invasion of Ukraine has forced the European Central Bank to aggressively raise interest rates to curb inflation, drastically pushing up mortgage costs and in turn bringing down property prices as well as profit margins of building projects.

Builders are also suffering from higher raw material costs, a problem that had already begun during the pandemic but which has been accentuated by the Ukraine war.

A construction worker works on the new construction of an apartment building in the new development area of ​​Hanover-Kronsrode.

A construction worker works on the new construction of an apartment building in the new development area of ​​Hanover-Kronsrode. Photo: picture alliance/dpa | Demy Becker

“Investors no longer know how to make certain projects profitable,” said Müller.

In a sign of the crisis, developer giant Vonovia recently decided to put 60,000 projects on hold.

One in five property companies has reported cancelling building projects in August, while 11.9 percent face financing difficulties, according to a recent survey by economic research institute Ifo, which described the figures as unprecedented in 30 years.

READ ALSO: Why does Germany keep missing its house-building targets?

Many of the halted projects are also well advanced, pushing buyers into dire financial straits.

In Berlin, investors of the Project Immobilien’s construction had already paid half of what is due.

“I’m not a rich person. My money is the fruit of my labour,” said Shevchenko, who had already paid up €250,000 for the apartment he bought for half a million euros.

Valeriy Shevchenko

Valeriy Shevchenko of Russia poses in front of the site of the unfinished “Malmoerstrasse 28” residential housing project on September 18th, 2023. Photo: JOHN MACDOUGALL / AFP

With no insurance purchased by the building company or the future homeowners, there is no financial protection against the sudden bankruptcy.

Their only hope now is to find someone else to take over the construction, or to finish it themselves.

“I never thought that something like that could happen in Germany,” said Marina Prakharchuk, 39, with tears in her eyes.

The Belarusian had paid up €175,000 for her 45-metre square apartment.

“All my savings are in there,” said the employee of a logistics company.

Housing shortage

Beyond the investors left roofless by insolvent developers, the property crisis risks spiralling into a giant social crisis as the knock-on effects from the building slowdown crash into the rental market.

Scholz’s government had promised to build 400,000 homes a year to alleviate an endemic housing shortage made worse by burgeoning demand from an inflow of refugees and foreign workers.

But building permits have nose-dived 25 percent between January and June compared to a year ago.

READ ALSO: EXPLAINED: What is Germany doing to solve its housing crisis?

Experts believe the sector will struggle to even hit 250,000 in new build approvals this year, while next year bodes no better with a forecast of under 200,000.

With fewer new housing stock coming on the market, rents are rising unabated, further eroding households’ purchasing power.

“More affordable housing must be built in Germany so that young families and those who are looking for apartments can have a good chance of finding one,” said Scholz, after the crisis talks.