General Departmental Research (ReFo) - Housing Construction Financing: Financing Structures - Regulatory Frameworks for Investors and Financiers - Implications for New Housing Construction

Investments in housing construction have been and continue to be a major challenge for projects and their stakeholders due to their high capital intensity. In recent years, market conditions in housing markets and the framework conditions for financing have also changed significantly. The increase in costs due to rising material, labor, and land prices, combined with the sharp increase in interest costs compared to the long period of low interest rates, has led to many projects outside of social housing being unable to be realized for profitability reasons. Additional regulatory requirements for financiers have tended to further increase the cost of housing construction financing. Keywords include Basel III with CRR III/CRD VI, ESG criteria, systemic risk buffer (KWG), and the Residential Property Loan Directive. Other existing regulations, such as the loan-to-value ratio of the Pfandbrief Act, are also significant as a regulatory framework for financing. Their design is therefore also discussed against the backdrop of changed market conditions and risk assessments with regard to financing costs. In addition to "classic" housing construction financing, but still within the banking sector, regulations such as BRUBEG within the framework of the Banking Directive (here: equity investments) and ADC financing ("Acquisition, Development and Construction" as a subcategory within CRR) are effective. At the same time, it is of interest to what extent the growing spectrum of non-bank financing methods is gaining importance and how regulation affects them. For example, funds, EIB financing, Schuldschein loans, bonds, green bonds, private credit funds, club deals, or crowdfunding play a role for housing industry stakeholders. The present project aims to systematically analyze the effects of current capital market regulation on the applied forms of housing construction financing and thus on housing construction itself, and to derive recommendations for action. The starting point for the research project is the question of whether there are bottlenecks in the realization of rental housing projects that are caused by existing regulation and further financing framework conditions, and due to which insufficient funds (costs and volumes) are available. The research thus also raises the question of whether adjustments to the regulatory framework conditions could enable more financing volumes and lower financing costs in housing construction, and what these might potentially look like. For this purpose, the different active and potential housing construction stakeholders, their financing options, and the financier side are to be considered in a differentiated manner. Against the backdrop of the sharp rise in interest rates since 2022 compared to the long period of low interest rates, potentials for reducing financing costs are currently very significant.