• Germany’s federal election is scheduled for Sunday February 23rd. At this stage, a coalition between CDU/CSU with either or both SPD and the Greens appears the most likely outcome.
• In this piece, we lay out what the parties have presented in terms of priorities or potential policy changes in the residential real estate sector. This ranges from increases in rent regulation on the left, to policies focused on decreasing rent regulation and encouraging investment on the right.
• Germany’s strict rent regulation is the key determinant of growth for the major residential players. Germany also has a housing supply-demand mismatch, which is getting worse. The previous government’s target of 400k new apartments per year was consistently missed.
• There’s a risk that the outcome of this election results in a shift towards policy aims including stricter rent regulation, a likely negative for landlords. This is given the positions of the more left-leaning SPD and Green parties, while CDU/CSU’s rhetoric on housing issues has been more in favor of investment in our view. Changes over time could include an extension of the rent break (Mietpreisbremse) with an expansion of scope (e.g. to include apartments built after 2014 and eliminate loopholes for furnished/temporary lets), a reduction of the Kappungsgrenze in tight markets (rent cap currently 15% over 3 years) and an expansion of the observation period for rent index (Mietspiegel) calculations.
• Key credits that we cover or monitor with exposure to the German residential market include Vonovia, Aroundtown via Grand City, TAG Immobilien, LEG Immobilien, HOWOGE wohnungsbaugesellschaft, Heimstaden Bostad, Adler Group, Covivio, Blackstone PPE, and CPI Property Group.
• At the bottom of this piece, we include a reminder section on the mechanics of rent regulation in Germany.

The Election

The traffic light coalition (SPD-FDP-Greens), elected to government in December 2021, collapsed in November 2024 following numerous disagreements between member parties, in particular regarding FDP’s opposition of an SPD motion to suspend the country’s debt ceiling, currently capped at 0.35% of GDP, to fund both domestic spending and support for Ukraine. The disputes culminated with German Chancellor and SPD leader, Olaf Scholz dismissing Minister of Finance and Leader of the FDP, Christian Lindner thus signalling the end of the coalition.

The nature of Germany’s federal electoral system means it is rare for a single party to win a majority of seats, hence coalition governments occur frequently. A federal election is now scheduled for 23^rd February 2025, see the chart below for recent polling data of the parties most likely to secure parliamentary seats. Note, to participate in parliament parties must obtain at minimum 5% of seats or, as an exception, win a majority of first votes in at least three constituencies.