Key interest rate increase by the ECB: Turnaround in interest rates jeopardizes housing construction target

The turnaround in interest rates by the European Central Bank will also cause construction interest rates to rise further. This is likely to further jeopardize the federal government’s goal of creating 400,000 new homes per year.

Of the three key interest rates set by the European Central Bank, the one that attracts the most public attention is the so-called main refinancing facility. This is the interest rate at which commercial banks can borrow money from the central bank. For them, the increase from 0 to 0.5 percent that was announced yesterday will cost them something to get fresh money – and they will pass that on to customers. Also to those who want to finance a property or a construction project.

“This is another blow in the effort to create more affordable housing in Germany,” says Oliver Wittke, chief executive of the Central Real Estate Committee. This is one of the major associations of the German real estate industry. Wittke points out that interest rates for construction loans have risen sharply in recent months and have reached a ten-year high of a good three percent – driven by inflation.

The ECB’s decision to raise interest rates to 0.5 percent is likely to make loans even more expensive. “In addition, there are supply chains that are collapsing, there is a lack of skilled workers, prices are exploding, a subsidy backdrop that has been blown away. So: no good prospects for inexpensive living in Germany,” says Wittke.

Concern about the construction industry

Many construction companies are currently so busy that they are no longer accepting new orders. And the construction projects often drag on because special parts are not available. A consequence of the pandemic and the war in Ukraine. “We can’t do anything. Just wait, wait, wait. And hope that things will work out,” says the trainee for a heating engineer in Essen.

The Central Real Estate Committee now fears that the high interest rates could deter investors – just like the bureaucracy on the part of the state, says General Manager Wittke. He therefore demands that the federal government renounce its high energy standards for new buildings. “That hinders the market even more,” he says. “You can possibly afford that in good times. But in difficult times like the one we are having now, we have to do everything that stimulates housing construction. And what private financiers do to invest money in housing construction.”

Greens insist on new energy standards

The Federal Ministry of Building does not want to say anything about this on request. The building policy spokeswoman for the Greens, Christina Johanne Schröder, defends the government line. High energy standards need to be stipulated right now, when heating is probably becoming more expensive than ever. “We absolutely cannot understand why real estate companies do not want to build as efficiently as possible and would rather let the regulations slide. Because the high ancillary costs are a particular burden on the tenants, the people,” says the Greens -Politician.

But the federal government’s target of 400,000 new apartments this year is unlikely to be achieved. It was already missed last year – still without the influence of the war and the higher key interest rate: At that time around 293,000 new apartments were built. The Ministry of Construction announced in the spring that it would digitize the approval process for construction projects and adapt the 16 individual state building regulations to one another.

Green politician Schröder is counting on other incentives: “Namely: making more use of vacancies, converting commercial real estate and increasing it. We want to create new apartments that are more resource-efficient than through new buildings.” In addition, the Greens within the government are committed to ensuring that the focus is on public utility when it comes to new apartments – and less on the profits of the builders. The FDP in particular has other priorities. The next coalition crash should therefore be in the house.