Ministry of Economic Affairs suspends KfW subsidies for climate-friendly construction

Germany’s Federal Ministry of Economic Affairs caught builders and investors off guard with its sudden decision to suspend the subsidy programs of its KfW development bank for energy refurbishments and climate-friendly construction with immediate effect. As the Ministry announced without prior notice on 24 January 2022, the “approval of applications for federal funding for efficient buildings (BEG) by the KfW […] is subject to a provisional suspension of the program, effective immediately.” In addition, the house-building subsidy program under the KfW efficiency house/efficiency building 55 (“EH55”), which would have expired by the end of the month anyway, was terminated with immediate effect. The steps were criticised by industry insiders.

Ministry takes steps after being inundated with applications

The Ministry cites an “enormous inflow of applications” in January 2022 as the reason for the abrupt program suspension, arguing that the Federal Government’s provisional budget of five billion euros for the efficient building subsidies through the KfW has already been exhausted. It went on to say that the number of applications for EH55 house-building subsidies had surged in January and far exceeded the funds budgeted for the program. The background being: In November 2021, the outgoing Minister of Economic Affairs, Peter Altmeier, had announced that the EH55 program would expire by the end of January 2022, thereby triggering a massive run on the program. Also affected by the provisional suspension that was now announced before the end of January, are the subsidies for EH40 new-build units, although the future of the program is to be decided shortly. The decision how to proceed with the submitted EH55 and EH40 applications that have not been approved yet will also be made soon. Unaffected by the sudden cuts, the Federal funding program for efficient buildings (BEG) of the Federal Office for Economics and Export Control (BAFA), which supports one-off refurbishment measures such as the replacement of heating systems, will continue as is.

Steps criticised by industry insiders

Representatives of the real estate industry were unsparing in their criticism of the steps taken by the Government. Dr. Andreas Mattner, President of the German Property Federation (ZIA), criticised the sudden suspension of the EH55 house-building subsidy program as “wrong and irresponsible for social, climate and business policy reasons,” whereas the Federal Association of German Housing and Real Estate Companies (GdW) worried that the suspension would put 300,000 apartments in jeopardy and demanded that the suspension of subsidies be reversed. Meanwhile, the Federal Government defended the cuts as a necessary step in order to check the misguided climate policy of recent years, and to swiftly catch up on necessary adjustments that had been neglected so far.

New climate policy subsidies in preparation

The Federal Ministry of Economic Affairs signalled that it would look into a potential hardship scheme for rejected applicants to keep projects already prepared for construction from running into financial difficulties. In addition, the Ministry is contemplating a holistic program in order to resume its promotion of energy-efficient building refurbishments and climate-friendly new-build construction as soon as possible. To this end, suitable programs with ambitious climate policy goals are to be launched, as stipulated in the coalition agreement of the new Federal Government of Social Democrats, Liberals and Greens. Sources: * www.bmwi.de * www.zia-deutschland.de * www.gdw.de