Declining Depreciation for Residential Buildings

As of January 1, 2025, the Growth Opportunities Act introduced the possibility of declining depreciation (AfA) for newly constructed residential buildings. This allows builders and investors to claim higher depreciation amounts for tax purposes in the initial years after completion. Specifically, five percent of the total investment costs can be deducted in the first year. In the following years, the depreciation amount does not decrease linearly but is always based on the remaining book value of the building. As a result, depreciation is particularly high at the beginning and gradually decreases over time.

The primary goal of this new depreciation regulation is to make residential construction financially more attractive and economically viable. Particularly energy-efficient new buildings are expected to benefit from this policy, as they often require high initial investments. The declining AfA ensures that investors can claim part of their costs for tax purposes more quickly, making capital available sooner for reinvestment in new construction projects.

Source: https://www.bmwsb.bund.de/SharedDocs/kurzmeldungen/Webs/BMWSB/DE/2024/03/degressive-afa.html

New Non-Profit Housing Program Launched

Since the beginning of the year, the new non-profit housing program has been in effect—a model designed to promote permanently affordable housing. It builds on the system that existed until 1990 and aims to incentivize landlords through tax benefits to offer rental units below market rates. The goal is to secure socially sustainable rents in the long term and enable new investments in non-profit housing development.

Eligible households are those whose income does not exceed five to six times the social assistance level under SGB XII. Current calculations suggest that around 60 percent of German households fall under this income threshold, meaning a broad segment of the population could benefit from the new advantages.

In addition to tax relief for landlords, the law includes further measures: Non-profit housing companies will receive targeted support for investments—for example, through tax benefits and legal frameworks that facilitate the formation of reserves for renovations and new construction. These measures aim to secure and expand the availability of affordable housing in the long term. By reintroducing the non-profit housing initiative, legislators are responding to the ongoing housing shortage in many regions, creating new incentives for the development and provision of socially bound housing.

Source: https://www.bmwsb.bund.de/SharedDocs/pressemitteilungen/Webs/BMWSB/DE/2024/10/NWG.html?

Building Type E to Reduce Construction Costs

At the beginning of the year, a new category of efficiency buildings, Building Type E, was introduced, featuring reduced requirements for soundproofing, thermal insulation, and ventilation. By allowing builders to deviate from certain technical standards, this new building class aims to accelerate residential construction and lower costs. At the same time, essential safety and environmental requirements remain in place to ensure compliance with necessary building regulations.

In the past, construction projects were heavily oriented towards "generally recognized technical standards" (aRdT), even when these exceeded legal minimum requirements. The strict application of these standards contributed to the continuous rise in construction costs. By deliberately forgoing costly standards that primarily serve comfort rather than necessity, the new approach creates more flexibility for cost-effective construction methods and innovative solutions.

The initiative is supported by a broad alliance of federal and state governments as well as professional associations. To ensure uniform implementation, the Federal Ministry for Housing, Urban Development, and Building has developed guidelines and process recommendations. These are intended to serve as a reference for builders, planners, and companies, helping to balance economic housing construction with necessary technical standards.

Source: https://www.bmwsb.bund.de/SharedDocs/kurzmeldungen/Webs/BMWSB/DE/2024/07/gebaeudetyp-e.html