German Election #8 – What real estate investors need to know about the new coalition agreement

The new policy direction must also be viewed against the backdrop of mounting political pressure stemming from housing shortages, particularly in Germany’s major cities. Building activity has declined significantly in recent years due to rising interest rates, higher construction costs, and regulatory complexity. At the same time, internal migration and immigration continue to drive up demand for housing, especially in metropolitan regions. This mismatch has created a politically sensitive situation, with housing affordability becoming a defining issue for voters and municipalities alike.

One of the centrepieces of the new government’s real estate strategy is a reform of planning and permitting procedures. The coalition aims to address longstanding delays in construction and infrastructure development by launching a national and EU-level initiative to simplify and accelerate processes. A unified permitting regime is proposed for infrastructure projects, and the duplication of procedural stages will be reduced. Public participation and stakeholder engagement will remain important but are to be handled more efficiently and, in some cases, consolidated. The process for certain infrastructure upgrades may no longer require full planning approval if they are deemed replacements. Overall, the strategy signals a shift toward greater pragmatism and digitalisation, aiming to remove procedural bottlenecks that have frustrated both developers and public authorities.

The coalition is taking a multi-pronged approach to stimulate housing supply. It includes reforms to the Federal Building Code (“BauGB”), new tax incentives, simplified building standards and expanded public investment. Within the first 100 days of the new legislative term, the government intends to introduce expedited procedures without undermining local planning sovereignty. Measures include expanding the use of modular and serial construction, reducing technical norms to essential safety standards, and incentivising the construction of the simplified "Building Type E",  a simplified and more flexible construction standard to encourage cost-efficient and faster residential building (the “E” stands for "einfach", which means "simple" in German).

Tax incentives for homeownership, especially for families, will be introduced alongside updated financing programmes that streamline access to federal subsidies from the state-owned investment and development bank (“KfW”). This would mark a notable expansion compared to the previous government's more fragmented initiatives.

The new government commits to a significant increase in investment in social housing. Funding for housing targeted at students, young professionals, and lower-income households will be expanded. Municipal housing companies will receive support through equity relief measures and public guarantees. A national investment fund, combining public and private capital, will be set up to provide long-term financing.

The coalition also promises regulatory support for cooperative and non-profit housing models. Programmes for barrier-free and age-appropriate living will receive increased funding. Moreover, cities with fewer than 100,000 residents are to be given additional autonomy in shaping urban development strategies, which should facilitate the activation of vacant or underused land.

The agreement reaffirms and expands existing rent regulation mechanisms for the residential sector. The "rent brake” (“Mietpreisbremse”), regulation capping rent increases, will be extended by another four years. In addition to civil law remedies, violations may also lead to fines. The government also intends to tighten the rules on index-linked rental agreements and short-term or furnished leases, especially in tight housing markets. A national rent monitoring system is to be introduced to provide data-driven oversight. 

Another important aspect is the planned review of the provisions on excessive rent (“Mietwucher”) within economic criminal law. A commission including landlord and tenant representatives will be tasked with developing proposals to ensure both affordability and investment incentives. These developments suggest that while there is continued political support for rent regulation, the approach will be more structured and enforcement-oriented than in previous years.

Recognising the central role of real estate in meeting climate targets, the coalition agreement sets a new course for energy efficiency regulation. The current Building Energy Act (“GEG”), criticised for its complexity and rigidity, is to be repealed. In its place, the government plans a more flexible legal framework that focuses on long-term emission reductions rather than short-term efficiency gains and specific technologies.

Importantly, public subsidies will continue to support energy-efficient renovations, and the GEG will be more closely aligned with EU standards. National efficiency classes will be harmonised with neighbouring countries. The overarching goal is to ensure climate neutrality by 2045 while maintaining predictability and certainty.

Cities and municipalities will play a central role in implementing housing and infrastructure policy. The agreement outlines a doubling of the federal urban development budget and a modernisation of funding procedures. Additionally, pre-emptive rights for municipalities are to be strengthened, particularly in socially sensitive areas and to counter urban decay. The coalition agreement also aims to close loopholes that allow share deals to circumvent municipal pre-emptive rights.

Building information modelling (BIM) is set to become the new digital standard for public and private construction projects. A federal research centre for sustainable construction will be established in cooperation with the states of Saxony and Thuringia. The coalition also plans to develop action plans for bio-based and energy-intensive building materials, reflecting a broader move toward climate-friendly construction.

Furthermore, the administrative process around permitting, planning and inspections will be digitalised wherever possible. This is intended not only to reduce bureaucracy, but also to improve transparency and speed of execution.

While the coalition agreement is extensive in its treatment of residential property, it provides little in the way of concrete proposals for the commercial real estate sector.

Office, retail, logistics, and hospitality assets are largely absent from the coalition agreement. This may reflect both a policy focus on housing and the view that commercial markets are less politically sensitive. However, investors in these segments should remain attentive to developments in related areas such as zoning, tax policy, and infrastructure planning.

To enable an ambitious investment agenda, the coalition has agreed to loosen the constitutional “debt brake” (“Schuldenbremse”). This marks a significant shift in German fiscal policy and reflects the political consensus that large-scale public investment is necessary to modernise infrastructure and support the energy transition. A proposed 500 billion euro additional budget (“Sondervermögen”) for infrastructure will channel long-term capital into priority areas. Real estate and infrastructure developments are expected to benefit, particularly at the intersection of housing, transport, and energy systems.