The German government has agreed on a package of measures to support a struggling construction and housing industry. Among the changes are relaxed environmental codes.Germany's government on Monday agreed to a 14-point plan to address a growing housing crisis in the country.

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It comes on the day of a crucial meeting of building industry and government leaders, with Chancellor Olaf Scholz in the face of a depressed construction and housing industry.

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"More affordable housing must be built in Germany. That means we must greatly expand our activities in the building sector," said Scholz in Berlin after his crisis meeting with representatives from the German construction industry.

What is in the government's plan to tackle the housing crisis?

Scholz, who spoke alongside Housing Minister Klara Geywitz, said his administration will put plans to mandate stricter building insulation standards on indefinite hold. This means a waiver of the EH40 energy-saving standard.

The governing coalition of the center-left Social Democrats (SPD), environmentalist Greens and neoliberal Free Democrats (FDP) had agreed on EH40 becoming standard by 2025.

EH40 is a measure of energy efficiency, requiring a building use only 40% of the energy of a comparable new building.

"In view of the current difficult conditions in the construction and housing industry due to high interest rates and construction costs, the anchoring of EH40 as a mandatory legal standard for new buildings is no longer necessary in this legislative period and will be suspended," read the coalition's new policy paper.

"High interest rates and inflation are a heavy burden for the construction industry," the Reuters news agency quoted German Economy Minister Robert Habeck as saying on Monday. The minister noted that insulation measures, which the building industry says would dampen an already depressed market, "can wait."

"I don't see this new standard being introduced in this legislative period," Habeck was reported as saying.

The government says it plans to invest a record €18 billion ($19.06 billion) in the sector between now and 2027.

Other measures include expanding access to affordable credit and the "climate bonus" to replace fossil-fuel heating systems with climate-friendly ones.

Like relaxing environmental standards, Scholz said serial or modular housing would be a key generator of overall savings. It would mean that a house type could attain blanket building code approval and thus be constructed in any federal state without need for a new round of bureaucratic approval procedures each time. This type of municipal streaming paired with factory manufacturing would make building cheaper and easier said the chancellor.

Germany's ailing construction industry

The original EH40 plan had drawn harsh criticism from the construction industry for months because of, among other things, a steep rise in construction costs.

In the phase of low interest rates, ever higher standards for housing had been developed at the federal, state and local levels, Housing Minister, Klara Geywitz (SPD), told public broadcaster ARD.

"Now all three levels of government have to understand: We have to lower the standards and bring down the costs."

The new approach, said Geywitz, will, "change a lot and make a lot possible." Among the projects the government will be assisting are those in which office and shop spaces are converted to housing, as well as programs that partially subsidize the renovation of existing buildings rather than new construction.

These funds will come from the so-called climate and transformation fund, a separate fund not included in the federal budget.

German residential property prices are facing a serious downturn, with prices having fallen by their steepest decline this year since records began in 2000, data from the Federal Statistics Office shows.

The data also shows that building permits for apartments in Europe's largest economy fell 31.5% in July compared to the same month a year earlier, as construction prices rose by almost 9% on the year.

A government report outlining building trends noted a 27% year-on-year drop in building permit applications in the first half of 2023.

In its coalition agreement, the government had set a target of 400,000 new apartments per year. It has fallen far short of that goal to date.

Speaking of Monday's announcement, the Germany Property Federation (ZIA) was enthusiastic.

"The [government's] new realism regarding environmental and tax break signals show that last week's talks were worth the effort," it said in a statement.

Environmental groups such as the German branch of Friends of the Earth (BUND) were notably less excited.

"The government's new building and living plan does not set the course for equitable housing and an ecological future, but rather, for catastrophe," said CEO Antje von Broock.

"With the coalition's plan we continue to hurtle toward climate catastrophe, with more and more people not knowing how they can afford to pay their heating bills."

js,dvv/rc (Reuters, AFP, dpa)

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(The above story first appeared on LatestLY on Sep 25, 2023 10:20 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).