Highrise housing projects in Germany going bankrupt

Discussion in 'Economics & Trade' started by kazenatsu, Sep 25, 2023.

  1. kazenatsu

    kazenatsu Well-Known Member Donor

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    Many of you in this forum have said that the solution to overcrowding and unaffordable housing in big city areas is to build up.

    Well, here is an article about what's happening in Germany. Many developers who were building high-rise condominiums have gone out of business. Several large buildings are sitting vacant and unfinished.
    Unfortunately many people who paid for a condo in a building that was still under construction at the time will not be able to get their money back.

    The article interviews one man, Valeriy Shevchenko, 33 years old, who had made a 250,000 euro advance payment for a 2-bedroom apartment that would end up costing a total of 500,000 euros. The building was in one of Berlin's most popular districts. He says that he spent all his savings to make that payment.

    Their only hope now is to find someone else to take over the construction, or to finish it themselves.

    Many of the halted projects were well advanced, pushing buyers into dire financial straits.

    A couple of factors are driving these bankruptcies. Higher interest rates, inflation, a slump in Germany's economy.

    "Investors no longer know how to make certain projects profitable.
    In a sign of the crisis, developer giant Vonovia recently decided to put 60,000 projects on hold.
    One in five property companies has reported cancelling building projects in August, while 11.9 percent face financing difficulties, according to a recent survey by economic research institute Ifo, which described the figures as unprecedented in 30 years."

    "[German chancellor] Scholz's government had promised to build 400,000 homes a year to alleviate an endemic housing shortage made worse by burgeoning demand from an inflow of refugees and foreign workers.
    But building permits have nose-dived 25 percent between January and June compared to a year ago.
    Experts believe the sector will struggle to even hit 250,000 in new build approvals this year, while next year bodes no better with a forecast of under 200,000.
    With fewer new housing stock coming on the market, rents are rising unabated, further eroding households' purchasing power."

    Germany's housing sector slumps into crisis , AFP (Agence France-Presse), September 25, 2023
     
  2. wgabrie

    wgabrie Well-Known Member Donor

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    I can't say I'm sorry for them. They built for the rich, forgetting that they make up less than 1% of the population.

    I never liked the idea of real estate for profit.

    Surely the developers could have aimed for the middle class. But they got greedy.

    Anyway, lesson learned. Housing projects never work out.
     
  3. wgabrie

    wgabrie Well-Known Member Donor

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    It isn't just a problem in Germany. I hear the Chinese housing projects are failing too.

    I seem to remember that one of the problems with housing projects is a lack of access to jobs. There're no jobs near these housing units.
     
  4. DentalFloss

    DentalFloss Well-Known Member

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    Who is gonna build a development (or even a single house) without making some money in the process?? It's not exactly a simple thing to do.
     
    FatBack and roorooroo like this.
  5. wgabrie

    wgabrie Well-Known Member Donor

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    Well, there's a call for the government to make incentives for housing if they want it.

    There are incentives for housing the low-income, and obvious benefits to catering to the wealthy (if they exist in large enough numbers), so really that leaves the middle class high and dry.

    It's the middle that isn't being served, and it looks like the government's desire for more housing projects is going down. So, it should be a goal of the government to make sure the existing housing stock, that has already been approved but abandoned by the developers, is either rerouted to the middle-income segment or abandoned in favor of other development.

    Government does that by making that option more attractive for developers, they have the tools if they really care about increasing affordable housing stocks.
     
    Last edited: Oct 3, 2023
  6. wgabrie

    wgabrie Well-Known Member Donor

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    I take that back. I just remembered that housing projects have been a failure because developers were taking development rights and then moving funding into building business properties with it that didn't involve providing affordable housing.
     
  7. Aristophanes

    Aristophanes Newly Registered

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    Possible they went wrong in gambling (?) folks would be able to pay for those living quarters.

    In my neck of the woods… small housing developments and reconditioning of old structures are on the rise. Govt backed and substitutes for the renters, on tax payer’s dollars. That’s where the money is.
     
    Last edited: Oct 3, 2023
  8. DentalFloss

    DentalFloss Well-Known Member

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    Any housing that is occupied is, by definition, affordable. Not to everyone, obviously, but land and buildings are not free, nor should they be. Trust me... You do not want to live in government built housing.
     
  9. kazenatsu

    kazenatsu Well-Known Member Donor

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    I think that is part of it. The other part is that inflation and other factors increased construction costs and ate into profits.

    Highrise housing is expensive to build. Many do not realize that it gets much more expensive to build up above two levels. The building needs more structural support, there are more safety considerations, an elevator has to be built.
    There is a reason why highrise housing (like more than four levels) either tends to be either luxury housing or government projects.
     
  10. kazenatsu

    kazenatsu Well-Known Member Donor

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    Berlin's renters face more misery as housing crisis deepens

    On Berlin's broad avenues, posters put up by desperate would-be tenants seeking accommodation have become a common sight. Home viewings draw long lines of hopefuls, despite rent rises that have far outstripped salaries in recent years.

    The German capital, where cheap and abundant apartments were a magnet for artists and young professionals as recently as a decade ago, now has a vacancy rate of less than 1%. The cost and difficulty of renting is making it hard to attract talent and forcing some residents to leave, even though businesses are desperate for skilled labour.

    Rolf Buch, chief executive of Vonovia, Europe's largest landlord, cited record-high interest rates and rent controls as factors responsible for the mismatch between housing supply and demand.

    As Europe's largest economy teeters near recession, economists warn that high rents will feed inflation and reduce household consumption.

    About 85% of Berliners rent their homes, far more than the 53% for Germany as a whole, and the 30% average within the European Union.

    In 2004, the City of Berlin sold its indebted GSW social housing unit and more than 65,000 apartments, many vacant or needing renovation, to Goldman Sachs and private equity firm Cerberus.
    The city's population started growing again in 2005, as birth rates and life expectancy rose and migration increased. Foreigners now make up 24% of residents, their numbers having almost doubled between 2011 and 2023, Berlin statistics office data shows.

    A German law that limits how often a landlord can increase prices keeps rents low for long-term tenants compared with new arrivals and gives them little incentive to move.​

    Berlin's renters face more misery as housing crisis deepens, Maria Martinez and Riham Alkousaa, Reuters, November 15, 2023

    related thread: Germany begins to struggle taking in more migrants (posted in Western Europe section, Sept 28, 2023 )
     
    Last edited: Nov 16, 2023
  11. DentalFloss

    DentalFloss Well-Known Member

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    Let's start with the biggest problem of your generous (with other people's money) proposal... Government only had funds it taxes or borrows. Since we've had fewer balanced budgets than I have fingers on a single hand since 1789, borrowing any more to pay for yet another wealth transfer makes no sense because, being what, $33,000,000,000,000 IN DEBT ALREADY, our top priority (after national defense, which does not include non-profit housing) should be to reduce (and quickly eliminate) that debt rather than taking on more giveaway projects for the lazy and stupid.

    Not taxing whoever you define as 'wealthy' (and whatever your definition is, it's likely wrong) does not amount to benefits catering to them. Benefits are when you use John's money to pay for Peter's whatever (in this case, non-profit housing), when you're just lowering the already way, way too high taxes on 'the wealthy', that's "allowing" them to actually keep their own money, not to be given someone else's... Two very different things.
     
  12. kazenatsu

    kazenatsu Well-Known Member Donor

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    The difference is that a lot of the FINISHED high rise buildings in China are sitting empty; there is more housing units than people wanting to live in these units. (Well to be more precise, people who can afford anywhere close to the original intended price of the units even if offered at a significant discount)

    When you compare that to the situation in Germany, or America, the situation is very different. The housing is all filled and occupied and the vacancy rates are very low.

    These highrise housing projects in Berlin might have gone bankrupt, but if the buildings were completed, they would be completely filled with people living in them, nearly every unit occupied. (Even if the building developer lost money)


    There's a tendency for those on the Left to have a mentality that throwing some money at it can be the solution to any problem.
    So never mind if we cause a problem or have a problem, we can just throw some money at it and fix it, the thinking goes.

    I think we need to take more of a look at the factors that led to this problem in the first place, how the root causes can be addressed.

    Housing is a gigantic part of the economy, and I don't think the government has enough money to be able to easily solve the housing problem through just the ordinary process of throwing money at it. I don't think stuff like tax incentives are really going to do much to help.
     
    Last edited: Nov 17, 2023
  13. kazenatsu

    kazenatsu Well-Known Member Donor

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    That is not necessarily true. Just because people buy something, especially when we are talking about something that is considered to be closer into the category of a "necessity", like housing, does not mean it is "affordable".

    If you're going to define something as "affordable" if anyone can or does buy it, then I think you are just playing stupid semantics. That's very obviously not the meaning of "affordable" we are talking about when we use that word in this type of discussion.

    Or were you trying to imply that you think housing is affordable for most people who do buy or rent? Because I don't think that's what you were trying to imply.
     
    Last edited: Nov 17, 2023
  14. kazenatsu

    kazenatsu Well-Known Member Donor

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    The highrise project likely wouldn't have been worth it if they were pricing units to sell to "ordinary" people.

    Otherwise we would see more highrise projects selling new units at lower prices, which we don't, do we?

    I also think your perception that the units in this highrise were built only for "the rich, less than 1% of the population" is kind of inaccurate. Maybe something more like the top 30% of the city's population had an income range to be within that development's target buyer price range.

    What seems to have happened is that, due mostly to inflation, actual building expenses exceeded original projections. At some point the developers realized they would just be losing more money if they finished the building. Part of that may have been due to some of the units having already been pre-sold at an agreed upon price. And the financing expenses went up, the interest rates the developers owed on the funding they had borrowed, or additional funding they would have to borrow.
     
    Last edited: Nov 17, 2023

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