Germany unveils measures to prop up ailing construction industry

By Maria Martinez and Riham Alkousaa

BERLIN (Reuters) -The German government said on Monday it was shelving proposed building regulations as part of a 45-billion euro ($47 billion) relief package to prop up a construction industry stricken by high interest rates and rising costs.

Berlin will make 18 billion euros available until 2027 for affordable housing, with the rest of the funding coming from federal states and municipalities.

"We must massively expand activities in housing construction," Chancellor Olaf Scholz told a press conference ahead of a meeting with industry leaders to discuss the housing crisis in Europe's biggest economy.

"We need more affordable housing."

The government has put on indefinite hold plans to require more stringent building insulation standards, an effort to help prop up the ailing industry. Their abolition has been a top demand of industry, which says the measures are too expensive.

In addition, the government also said it would oppose new proposed European Union legislation that could require millions of buildings to be upgraded using methods such as insulation or efficient heating systems.

Opponents of the law fear it imposes too high a burden on the government and homeowners.

For years, low interest rates helped fuel a German property boom but a rapid rise put an end to the run, tipping a string of developers into insolvency as deals froze and prices fell. German housing prices fell by the most since records began in the second quarter, government data showed on Friday.

“The federal government has now finally recognized how serious the situation on the housing market is,” head of the Central Association of the German Construction Industry, Felix Pakleppa, told Reuters. “It is crucial that the federal, state and local governments implement this promptly.”

The government will also promote the conversion of empty offices and shops into flats with 480 million euros over the next two years, said Construction Minister Klara Geywitz, which could be used to build 235,000 new apartments.

"With our new funding, more people will be able to buy a house, an existing or a new one," she said.

Other measures included extending a so-called "speed bonus" to support climate-friendly heating installations and raising the subsidy amount to 25% from 20% of the cost of renovating a heating system, the minister said.

The sector needs liquidity, according to the German Construction Industry Association.

"We don't want subsidies, but incentives for investment," said Tim-Oliver Mueller, the association's chief executive, in an interview with broadcaster Phoenix.

($1 = 0.9414 euros)

(Reporting by Andreas Rinke, Maria Martinez and Riham Alkousaa, Writing by Miranda Murray and Matthias Williams, Editing by Friederike Heine and Emelia Sithole-Matarise)