More homes in economically dynamic regions can strengthen the labour market and open up additional opportunities for growth. A new report by the Scientific Advisory Board to the Federal Ministry for Economic Affairs and Energy focuses on this link. As reported by the Frankfurter Allgemeine and the Handelsblatt, amongst others, the experts recommend making the designation of building land more attractive and facilitating denser development. This gives housing construction greater weight in the economic policy debate. An increase in housing supply would not only help people looking for a home, but also make it easier for companies to recruit staff.
Difficulties finding suitable housing can prevent people from taking up a new job. Particularly in areas where companies offer attractive jobs, housing is often in short supply and expensive. A higher salary becomes less attractive if much of the additional income is absorbed by higher housing costs. Employees may then decide against moving and remain in their current place of residence. From the Advisory Board’s perspective, this results in missed opportunities to deploy workers where they could be particularly productive. The consequences therefore extend beyond individual housing situations and affect the performance of the economy as a whole.
Experts see potential solutions primarily in expanding the housing supply. In their view, too little housing is being provided in regions characterised by strong economic growth and high levels of inward migration. Rent controls do not address this structural shortage. Rather, the Advisory Board points to potential side effects such as longer search times and reduced mobility. Its recommendations therefore focus primarily on how to facilitate additional construction activity.
Local authorities play a key role in this regard. They decide which land is designated for development, but must also manage the associated infrastructure costs. When additional flats are built and new residents move in, there is often a need for more nursery and school places, additional transport links or sports facilities. This results in considerable investment and follow-on costs for the local authorities. By contrast, the increase in land value resulting from its designation for development initially benefits the respective owners.
The macroeconomic benefits of additional housing do not, therefore, automatically translate into a financial advantage for the local authority. This can dampen the willingness to designate new building land, particularly when local authority budgets are under strain. The Advisory Board therefore recommends that the landowners benefiting from such developments should contribute more towards infrastructure costs. A broader infrastructure levy or a mechanism through which part of the planning-related uplift in land value accrues to the local authority and make the creation of building land more economically attractive.
In addition, it should be possible to make more intensive use of existing land. To this end, the Advisory Board recommends across-the-board amendments to local development plans and the planning framework within built-up areas, enabling higher building densities. The recommendations include an explicit option for exemptions. The Advisory Board also recommends binding housing construction targets for the federal states and local authorities, alongside a review of strict targets for limiting land take. Tax relief for work-related relocations is intended to further facilitate changes of residence. These are recommendations by the Advisory Board and have not yet been adopted as policy.
“Those who facilitate housing construction also improve the conditions for employment and economic development. The Advisory Board’s recommendations therefore address key issues. Local authorities need a sustainable financial framework for developing new residential land, and existing plots must be put to better use. For these recommendations to be implemented, it is essential that they are translated into a reliable planning framework and economically viable projects. Additional homes will only be built if planning frameworks support viable investment,” says Jacopo Mingazzini, CEO of The Grounds.
