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Slump in new construction projects in Saxony: dramatic impact on social housing construction

Scaffolding on a residential building / Photo: Sebastian Gollnow/dpa/Symbolic image
Scaffolding on a residential building / Photo: Sebastian Gollnow/dpa/Symbolic image

The municipal housing industry is expecting a dramatic slump in new construction projects in Saxony this year and next, including in social housing.

The municipal housing industry is expecting a slump in new construction projects in Saxony this year and next - including in social housing. "This is dramatic because these are often projects that were intended for the small purse," said Alexander Müller, Director of the Association of the Housing and Real Estate Industry (vdw), in Dresden on Thursday. In a survey, member companies in Saxony stated that around 85 percent of the new construction projects planned for this year could no longer be realized in the current situation. Around 80 percent of the companies stated that they would not be able to build any new apartments in 2024.

"This also includes social housing construction, where we will almost have a cessation of activities," said Müller. The vdw Saxony comprises 127 mainly municipal housing companies, which manage around 303,000 apartments, around a fifth of the rental apartments in Saxony. The association also anticipates a decline in residential construction among its members in 2025. For comparison: in 2022, around 164 million euros were invested in new construction by the municipal housing companies in the Free State.

In particular, Müller criticized the lack of funding for social housing construction. The head of the association also cited the sharp rise in interest rates, high construction and energy prices and inflation as further reasons for the slump in construction activity. 2023 was a "catastrophic year in terms of housing policy", Müller criticized, referring to the policies of the traffic light government in Berlin. Subsidy programs were suddenly ended and the heating law was implemented in a "botched" manner.

The association did not rule out the possibility that rents in existing properties would have to be increased in some cases. In 2022, the average basic rent for municipal housing companies was EUR 5.22 per square meter - around three percent higher than in the previous year. "That is still well below inflation," says Müller. In addition, the price of district heating is expected to "triple to quadruple" in some municipalities, he said. From March 1, gas and district heating will again be subject to the normal VAT rate of 19 percent. To ease the burden on consumers, the rate of 7 percent applied temporarily.

The association called on politicians to provide reliable framework conditions and sufficient funding for new construction, for example. If companies were to build without subsidies, the minimum rent per square meter would have to be between 12 and 13 euros to cover the costs, Müller said.

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