Solving Germany’s Housing Crisis

Vonovia demonstrates one way to add a 5th floor (Image credit: Vonovia)

Beyond the complex political and social implications of the huge inflow of refugees into Germany, there’s a simple question: Where will they live? The need for new housing could top 400,000 new flats every year by 2020. In a country with an average 3% vacancy rate, and a strong influx of people moving into its cities, the construction challenge is immense.

“It’s an immediate problem,” said Rolf Buch, CEO of Vonovia, Germany’s largest apartment owner and manager.

“We have to find ways to build faster.”

Vonovia’s response is to innovate the very concept of its core four-story buildings by adding a fifth floor. The buildings can support the extra weight, the vertical height doesn’t impede on open spaces, and it will cost less than constructing new structures.

“It’s also important to integrate immigrants into existing communities versus isolating them in stand-alone housing,” Buch explained, noting that the biggest challenge is that a four-story building is a walk-up, but a fifth floor requires an elevator. The company has hired engineers to deconstruct preassembled elevators, and rebuild them from scratch as mods to their existing structures.

The challenge is made greater by the tradition of public/private cooperation, begun after WWI, that literally rebuilt housing from the rubble that was much of Germany after WWII. Regulations overlap and take time to change, and decisions involve a variety of stakeholders.

“Building apartments is a two- to three-year process, so work begun now won’t be finished before 2018,” Buch said. “There are immigrants living in temporary housing [like sports stadiums] who’ll need places to live sooner than that.”

All of this comes as Vonovia is entering its third year of transformational change. Buch, who was the father of Lufthansa’s frequent flyer program, and was CEO of Bertelsmann’s global service division, Arvato, is driving a shift from managing assets, to providing customer services.

“The ultimate value of housing isn’t the physical stock, but the people living in it.”

Previously, Vonovia had separate managers watching over financial assets and properties. This led to conflicts, like when an asset manager chose to repair a garage door on a large apartment building in Mainz because it was cheaper than replacing it. The property manager didn’t inform him that the repair would take 6 weeks, leaving the garage open to crime, and making the “cost” far greater than originally calculated.

Its new regional structure relies on leaders, called entrepreneurs, who’re each responsible for the totality of apartment groupings as small as 5,000 units. They’re incentivized to not only maximize ROI, but increase customer satisfaction and loyalty.

This allows the company to spend significantly on innovation in four key areas: Standardization, such as purchasing windows from a single wholesaler; financing, like renting kitchen appliances (which don’t come with apartments like they often do in the U.S.); construction, which may be best evidenced by its creation of in-house “bathrooms on demand” teams that can install upgrades in one week instead of four; and, not surprisingly, subscription, like negotiating with Deutsche Post to let it build parcel delivery boxes so its customers don’t have to be home in order to accept packages.

The results are already apparent: The company’s stock price has increased by 80% or so since its IPO in mid-July, 2013, and it has raised its dividend by 40%.

“The expectations of German consumers are changing, along with our national need for more housing options,” Buch said.