Survey: Inflation will hurt affordable housing development in Lower Saxony

The demand for affordable housing is still quite high, coupled with rising construction material prices, land purchase prices and a labour shortage

Inflation could cause a serious dent in the push to solve the affordable housing crisis in Lower Saxony and Bremen, Germany. Although authorities, housing associations and private actors are trying to provide more housing, the recent jump in prices for building materials has halted many projects, while others will be postponed.

According to a recent survey by Verband der Wohnungs- und Immobilienwirtschaft in Niedersachsen und Bremen (Association of Housing and Real Estate Industry in Lower Saxony and Bremen), most developers see new housing projects right now as uneconomical.

Raw materials have gone up by double digit numbers since last year

Around half of the housing association’s members (81) took part in the survey and according to the results, Lower Saxony and Bremen could miss out on 1,500 new residential units in 2023. However, the situation is a bit more concerning, as current price hikes threaten to jeopardize both ongoing and future development and renovation projects.

According to the survey and the data provided by the association’s members, this, furthermore, includes 3,100 new homes and the modernisation of 4,900 existing homes that are already planned and under construction. In addition, as the financial burden rises, housing developers and managers question their ability to finish maintenance measures for an estimated 10,000 apartments.

Unfortunately, despite funding for social and affordable housing steadily rising over the past decade, a perfect storm of cost increases could dampen the ambitions of developers. This includes a serious increase in construction costs, a lack of building materials, a labour shortage in construction and building plot prices becoming too expensive, with mortgage interest rates also on the rise.

COVID-19 and the war in Ukraine have produced a knock-on effect on supply chains that has shaken the entire industry. Price hikes in building materials in Germany, for example, are in the double digits, compared to May 2021.  Solid structural timber rose by 83.3 %, steel by 44.3% and asphalt by 63.9%.

At the same time, funding for the affordable housing sector in the federal state of Lower Saxony has been steadily increasing over the past ten years. In 2011, investments were at 105.7 million euros, while in 2021, they reached 773 million.

The rise in costs would blunt that expansion effort, as most of the funding comes from public sources, which are considerably less flexible. According to Dr Susanne Schmitt, the Association’s director, growth will come to an abrupt end. Furthermore, this development would have a negative impact primarily on low and middle-class households, as the general conditions for quality affordable housing have not changed.

She added: “Our member companies have always contributed to a social housing market and would like to continue to do so. But building apartments for a lot of money and then renting them out for seven or eight euros per square meter is a calculation that simply no longer works out.”