Investment in price-controlled housing is regaining importance for the institutional sector. A current analysis by CBRE shows that improved economic conditions, resulting from public funding programmes and tax relief, can lead to attractive risk-adjusted returns. These returns prove to be a potential conviction in the current market environment, even when compared to other defensive asset classes.
Dr. Jan Linsin, Head of Research Germany at CBRE, emphasises that the issue of affordability primarily concerns access to suitable rental properties. The decline in available housing creates a structural asymmetry between existing and new contract rents in the German housing market. Declining new construction activity affects all segments, meaning that even in regulated and price-controlled areas, free supply is increasingly limited. The new contract premium highlights the changed burden when moving home. While the burden rates for existing tenants remain moderate due to tenant protection, new tenants face currently higher market rents and an increased burden. This inhibits relocation mobility in strained markets and raises entry barriers.
Within German cities and regions, this asymmetry manifests spatially. While in metropolitan areas such as Berlin and Hamburg, new contracts for new builds sometimes require more than 40 percent of household net income, the burden for existing tenants in regions such as Leipzig, Dresden or Dortmund is sometimes below 25 percent. For long-term investors, investing in affordable housing is increasingly paying off.
Beyond traditional social housing, investors now have access to various funding programmes that combine public financial aid with market-economic principles. In practice, these lead to so-called mixed-approach models, in which subsidised and freely financed housing units are realised within the same project. The viability of such models is demonstrated by existing state programmes. In Berlin, for example, public loans with terms of up to 30 years can cover a significant part of project financing with favourable conditions.
Additional impulses result from tax measures. The introduction of declining balance depreciation for new residential construction allows for higher depreciation volumes in the initial project years, thereby improving economic viability, especially in the early project phase. In combination with linear depreciation, additional financial scope is created, making investments in price-controlled housing projects more attractive. The investment focus in this segment is also shifting from short-term exit scenarios to long-term stable return profiles. While previously an approximately ten-year investment with subsequent sale dominated, strategies aiming for sustainable cash flows, low volatility, and a long-term inventory orientation are gaining importance today. Price-controlled and partially tied housing models fit this approach, as they combine plannable revenue streams with consistently high structural demand.
Jirka Stachen, Head of Research Consulting Continental Europe at CBRE, states that a functional interface between regulation and the market is created by this approach. Price-controlled and partially tied housing models are thus less a classic exit product and more a long-term oriented cash flow investment. These models enable stable returns, a secured risk-return profile, and address the structural demand for affordable housing. Dr. Steffen Heinig, Senior Analyst at CBRE, highlights that the current challenges in the housing market cannot be solved by the public sector alone. Resilient housing structures therefore emerge where public funding and private capital cooperate. Close collaboration between the state and private investors is essential to create sufficient affordable and at the same time economically viable housing options in the long term.
