Keywords such as “social housing”, “low rents” or “social hotspot” are sometimes associated with state-subsidised housing. It is often overlooked that apartments built with the help of state subsidies represent a real estate market segment that also offers investors attractive investment opportunities with investor-friendly distribution yields.
This is made possible by various influencing factors, which affect the financing side in particular. Under certain conditions, the state provides financial support for housing construction projects, in particular through low-interest loans, construction cost subsidies, rent subsidies or repayment subsidies. Compared to projects without state funding, the cost structure and financing can be optimized. In addition, the yields are easy to calculate and can be predicted relatively accurately. This aspect is particularly relevant for institutional investors such as insurance companies, pension funds or pension funds, which pursue a long-term, security-oriented investment strategy because they have to meet payment obligations to their insured persons or pensioners with the income from their investments.
However, the prerequisite for successful investments in the field of subsidized housing construction is a sound knowledge of the funding landscape and careful clarification of the funding opportunities that are eligible for a specific location. On the one hand, this is generally a relatively complex matter, and on the other hand, in addition to nationwide uniform funding opportunities, there are also various other programs available that are only offered at the level of individual federal states or even only within a specific municipality. It is therefore necessary to check separately for each location which funding opportunities can be used there and which requirements must be met in each case.
In addition to the economic effects of state subsidies, the social aspect also plays a central role. A growing number of investors attach great importance to taking ESG criteria into account in their commitments, although the focus so far has usually been primarily on the “E”, i.e. on ecological aspects. Of course, these also play a central role in subsidized housing projects, and many subsidies are made dependent on whether certain ecological criteria are met, for example with regard to energy efficiency or avoidance of CO2 emissions. In addition, subsidised housing projects can also make an important social contribution by helping to address the housing shortage in tight housing markets. Even though the various forecasts may differ in detail, there is general agreement that the development of the housing supply in Germany’s major cities and conurbations has not kept pace with the development of demand for years and that this is unlikely to change much in the coming years.
Currently, there is a shortage of around 1.9 million apartments in the low-cost price segment alone, especially small units for singles and larger apartments suitable for families with children. Even if a total of 18 billion euros are to be invested in social housing by 2027, it is already foreseeable that this will not be enough. It is estimated that at least 50 billion euros would be needed to achieve the target of 100,000 new social housing units per year.
These orders of magnitude not only highlight the gap that needs to be filled, but also show the enormous potential for investment in this segment. Private as well as institutional investors who are looking for long-term and easily predictable investments with an attractive risk-return profile should therefore not lose sight of the subsidized housing segment. This is especially true if they want to get involved in areas where they can consciously contribute to positive effects with regard to ecological or social objectives with their investments. In addition, open-ended real estate mutual funds in the area of subsidized housing construction find opportunities to further diversify their portfolios.
