Mrs. Esser, you will receive a lot of disturbing news and inquiries these weeks. What drives the member companies of the Federal Association of German Construction and Real Estate Companies GdW around?
At the moment, the dominant topic is the gas price increases that have already occurred and those that are still to be expected.
What then do you advise?
We motivate our member companies to ask tenants to do everything in their power to reduce heat and hot water consumption. At the same time, however, we also need to adjust the advances for operating and heating costs so that the first big shock does not come with the settlement in the coming year.
Reading the current news, we have the impression that things are starting to deteriorate not only in the construction industry, but also in the housing and real estate industry. They too?
Some of our member companies are already seeing huge price increases. We have individual municipalities that are already transmitting gas price increases of 400%. It will probably be even more in winter. And we don’t see how we can refinance it through rents. This means that we can see that individual companies – smaller companies in weaker markets – are likely to have payment problems in the fall / winter season as they themselves have a high vacancy rate. They just can’t refinance from their rent anymore. That is why we turned to politicians with a proposal to create an aid fund in the event of a difficult situation, so that housing companies do not even have to burden their tenants – depending on their income, of course.
Today we are talking about an increase in additional costs, security of supply, a possible moratorium on rent, suspension of termination in the event of difficulties with payments and loans to landlords who cannot advance energy costs. What are we talking about tomorrow? Has the size of the coming bad news been fully grasped?
Of course, none of us know what will happen in 2023. If Russian gas stops flowing and we generally have to ensure security of supply with other solutions, prices will not fall any more. Especially in the coming years. Then we will need permanent solutions. And it will cost you a lot of money.
Are we approaching a point where rents will decline because small and middle income tenants can no longer pay realistic rents? We’ve heard from companies in Saxony whose cold rent is less than the share of operating costs.
It would be a logical consequence. But of course it doesn’t work. Inflation cannot be prevented in this way. The cost of living is also rising sharply now and interest rates are rising. We have two items that are already significantly increasing costs. Depending on the regional market, we often no longer have the possibility to reflect this in the rent as this path is blocked by rent regulations. So we have a situation that the costs can no longer be compensated by increases in rents. But what if we had to lower the cold rent now? This would not only be at the expense of profitability, but would also deprive the company of the possibility of refinancing and lead to liquidity bottlenecks.
But who pays in the end? A single owner, a housing company, will not be able to do this in the long run, and neither will tenants.
The situation is comparable to the financial crisis over ten years ago. We had to think about very large quantities and solutions. About the stabilization fund. And in the end, in today’s situation, it will probably be no different. Because you will have to think broadly and find a distribution mechanism for a long time. In fact, this means that the state must step in first, and that the burdens that arise here must be stretched over a long period of time so as not to overwhelm the individual end consumer.
Let us dwell for a moment on the rents. There is not only a cold rent, but also a warm one. Of course, the rent, including heating, is based on certain conditions that are changing more and more. Energy costs are completely unpredictable. Perhaps we need to come up with completely new models for prepayment or short-term rent adjustment, including heating.
Of course, we will have to consider this. Currently, we ask our companies to check all heating systems in the summer and to regulate them efficiently. When it comes to really systematic, monitored, digitally controlled operation of heating systems, we naturally need specialists. And there are bottlenecks. However, in many buildings, we can still get 15 to 20 percent. The second topic that we have now proposed in the short term – which politicians do not really dare to tackle – is guaranteed temperatures. We need more freedom here.
But now Mr. Marcel Fratzscher, head of the German Institute for Economic Research (DIW), would tell you that you are sowing panic. Most of the damage we are currently suffering economically, he said, is not due to energy shortages but to soaring prices. Do you agree with that? The problem is not the lack of energy, but the price?
no We currently have a 66% fill level of gas storage tanks. But when it comes to surviving winter, we need to hit 90 percent in November. If that doesn’t work, it’s not a question of prices, it’s a question of security of supply. Then there is also the question of when and for whom the exclusions must take place. At this point, Mr. Fratzscher may not fully think. It would be a total crash for the tenants of our buildings.
Over the next few years, the federal government is planning energy subsidies for construction from 13 to 14 billion euros per year. Individual subsidy rates for building renovation have been lowered. You criticize this, as do the Federal Association BFW and the Central Association of the German Construction Industry. The focus should be on renovation, a smaller part of a billion is for new construction. Instead of grants, there are now loans that have to be paid back. Do you think it is realistic that construction subsidies will be used on a large scale – do owners and tenants have completely different financial problems at the moment? Is the energy efficiency of buildings currently our topic?
Following the suspension of funding in January, the new building was more or less shut down. Ultimately, the same is happening now with the promotion of existing resources – with the exception of measures that are currently underway, which have already started, and which, of course, are under the old terms. Considering the figures I looked at from the information provided by KfW and the ministry, everyone has to wonder if they are still investing in this area at all. Especially since, as you rightly say, it is not possible to adjust the cold rent at all due to investment activities. If your heating costs are € 4 or € 5 per square meter instead of € 1.20 per square meter – how do you adjust the rent for investment? It will end.
As GdW, you organize a “bank breakfast” once a year – at the Berlin Hilton on the Gendarmenmarkt. Until now, tables have always been richly set. According to information from Hüttig & Rompf AG, on Wednesday, the demand for real estate financing decreased in the second quarter of 2022 compared to the same quarter of the previous year. Can banks still make money on real estate in the future?
This is a really multifaceted topic. Now we have the effects – or infections, I must say. On the one hand, the volumes to be financed are increasing rapidly due to the increase in the cost of new construction. This makes creating projects for private property very, very unattractive. At the same time, purchase prices would have to continue to rise. However, interest rates soar so that financing costs are no longer available to many potential buyers. I find it particularly macabre that BaFin (d. Federal Financial Supervisory Authority, d. editorial) subsequently also introduced a venture capital buffer for real estate financing. As a result, banks now have to provide even more equity to finance real estate, which then translates into even higher capital costs, i.e. interest. This is a triple negative effect. In this respect, it is not surprising that real estate financing is declining en masse.
Let us summarize once again: you see the duty of the state here, as in the financial crisis of 2008, to amortize everything for a long time and bear the financial consequences of soaring energy prices for all parties and all involved, and then bear these financial burdens on the state in the years to come. removed again.
Yes. Otherwise, it probably won’t work.
Finally, let me have one more personal question. We don’t ask how long you take a shower. But how do you and your family prepare for a cold winter?
In fact, I take shorter showers. In fact, you should ask my husband, who whispers to me how cold it is at home every night. I actually cut my heating down around the beginning of this year, and we’ll keep it that way for as long as possible.
What about a chimney system, a heater, etc.?
The heater is still in the basement for emergencies and there is also a bio fireplace in the living room.