Buildings Minister Klara Geywitz (SPD) has now presented a key issues paper on the new not-for-profit housing scheme (NWG). The idea behind it: If housing companies promise permanently low rents and forgo returns, they’ll get tax breaks and investment subsidies.
Three options are now proposed in the document, as the project could be “implemented with different concepts and to different effects”. But economists are critical: the programs are expensive, ineffective and even dangerous.
According to the plan of the Ministry of Construction, the housing company will be transferred to NWG as a whole or established as an NWG company. This would go hand in hand with a perpetual obligation to “let it out for a much lower price”. Prices are assumed to be 20% below local relative rents.
As the company suffers a financial disadvantage as a result, it should be offset through tax breaks and allowances. In return, companies are exempt from corporate and trade taxes, and receive property tax relief. The ministry is also considering charging an entry fee as an incentive to encourage housing companies to provide inventory to the NWG first. In addition, new construction and investment subsidies are intended as a financial incentive to expand the NWG portfolio.
The construction minister has now come up with various options for implementing non-profit housing.
(Photo: IMAGO/Political Moment)
According to Michael Voigtländer, a real estate expert at the employer-relevant German Institute for Economic Research (IW) in Cologne, this option means that previously municipal, private and cooperative companies will have to accept the attraction of large sums of money. The economist is convinced that the NWG is hardly an option for private companies if they are not in financial trouble.
To keep rents permanently below local relative rents, substantial compensation is required. After all, the increase in new contracts also helps to secure revenues for municipalities and cooperative companies, especially given rising personnel and maintenance costs.
The IW experts point out that the city of Vienna spends around 60-800 million euros on non-profit organizations every year. The Austrian capital is known for its abundance of relatively cheap apartments. However, this amount is only related to the ongoing business and more financial resources have to be expended in the beginning. “In the three cities of Hamburg, Munich and Berlin alone, the annual cost amounts to 3 billion euros,” Voigtlander calculates.
Tobias Just, professor of real estate economics at the University of Regensburg and managing director of the IREBS Real Estate Academy, criticized the “concrete silence”: details on specific amounts, limits, timetables and testing mechanisms have yet to be given. The newspaper also did not offer any answers.
Option 2: Tax Relief
According to the ministry document, this approach is for companies that are “focused on social orientation”. NWG can be implemented within the scope of current tax laws. To this end, the Catalog of Uses of Tax Incentives in the Fiscal Code (AO) will be expanded. Then there would be a special “housing non-profit” purpose.
Economists are not yet convinced by the minister’s proposal.
(Photo: dpa)
Housing companies adopting this variant will not receive any subsidy. They will be exempt from corporate tax and trade tax and will receive a reduction in property tax. In the case of donations to non-profit corporations, estate and gift tax exemptions and tax breaks apply. The Gavits paper also considers further simplifications, such as the formation of revenue reserves to save money for larger investments in new construction and renovation.
However, IW economist Voigtländer considers the group targeted by the model “very manageable”. Refers to foundations, churches and other institutions that do not yet have any intention of making a profit. “But the rules could make sense here, especially since no additional subsidies were promised,” the expert said.
Real estate expert Just believes the model is “probably the easiest approach” because only one adjustment is required in the existing tax code. “But be careful, the practical question remains the same: when is it particularly worth funding and to what extent?” he warns.
Option 3: Offer companies a flexible approach
In the third variant, the real estate company as a whole does not have a permanent and binding focus on down-letting. It will only involve a certain part of the company or certain apartments. For example, a company may commit in its articles of association to lease out at least five to ten percent of its inventory for the benefit of the public. Only then will there be a discount. Targeted funding measures could also be introduced in order to “generate economic incentives for participation”, the document said.
IW real estate expert Voigtländer sees the proposal as “particularly dangerous” because of the risk that “companies will push unsalable parts of the company to nonprofits and pass on responsibility for poorly managed shares to the community”.
Professor Just also holds a similar view: For example, how to prevent companies from outsourcing “lemons” to NWG portfolios and get rid of the problems caused by state subsidy transformation?
Economist’s conclusion:
IW economist Voigtlander was “very critical” of the NWG. The proposed methods are either “very expensive or ineffective”. Lots of things could be regulated with a lot of money, “but since money is also scarce in the federal budget, it could of course be better spent”.
For property economists, there are two key reservations: the question of financing and whether EU state aid law will object to an option. Both have not been checked. “In terms of financing, there are still doubts that the Liberal Democrat-led finance ministry will be the driving force here – probably not,” the professor said.
So for him, the question is would it be easier to adjust housing benefits? It would also involve more spending, but could be more easily regulated in the existing system.
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