HOUSING CASE STUDY, GERMANY Local authority residential development in Germany: A case study for the UK?

Iain Mulvey

Iain joined Graham + Sibbald in May 2025 as Business Development Director. His remit is to drive the growth of the business across the UK as a whole with a strong focus on the public sector."

Iain here outlines an imaginative scheme by a local authority in Germany which addresses housing issues similar to our own. “The [LA] development company is unapologetic about capturing the developer’s profit”. Would the model work in the UK? 

modern residential area

Background 

Germany, like the UK, has a housing issue. Many of those issues are shared, such as increased inflation caused by the war in Ukraine, higher interest rates compared to the post-global financial crisis period, and political and legislative challenges. In the case of Germany, there is a view that there is now over-regulation- in terms of building quality standards around fire safety and environmental compliance in particular. The belief is that this has fuelled higher pricing due to the impact of those standards. The comparison is often made to the neighbouring Netherlands, where looser building regulations mean cheaper development costs and therefore land values and ultimately end cost to homeowners. 

In order to combat those challenges, some local development corporations (wirtschaftsfoerderungen) have elected to turn into developers themselves, rather like some local authorities in the UK who have created housing development vehicles. 

LA case study: Alfter, near Bonn 

In one example, the enterprising town of Alfter just four miles outside the former capital of West Germany, Bonn, has created its own development company to bring forward a residential led development, to provide more housing for its 25,000 inhabitants. By comparison, in a UK context, Alfter is similar in population size to towns such as Berkhamstead, Godalming, Ormskirk or Frome. 

The political landscape in the neighbouring city of Bonn has changed as part of an overall change in sentiment towards housing and the environment, meaning that future housing supply will now need to be of much higher density. Land values have increased substantially in the Bonn region, in comparison to Alfter and the wider surrounding areas. As a result, the entrepreneurial Mayor of Alfter decided to intervene and create a housing company which is delivering single family units of around 160 sq m set in plots of 475 sq m. This will provide family housing at a much lower density than surrounding regions, and at more affordable levels than in more urban areas and critically, is geared towards the needs of local communities. 

The council development corporation began by acquiring rural land just outside the town from private landowners, to assemble a site. It is important to note that this is not a town where there is ‘market failure’. As part of the agreement with the town council, the development company has borrowed €20.0m from the private market. That loan has the local authority as guarantor for the repayments, and in turn charges the development company a premium of 1.00% on top of the agreed interest rate for the loan. This has allowed the development company to create serviced plots for single family housing and a number of blocks which will be sold to housebuilders. In all, this will provide around 400 new homes in Alfter. 

The assembly cost for the serviced plots is €320.0 sq m and they are selling at €540.0 sq m – crucially with the development company retaining the profits to use to repay the infrastructure loan or fund future schemes. 

For each plot sold to the public, applicants are required to complete an online questionnaire to assess their suitability. This creates a score which allows them to rank the applicants in case of over-subscription, which was the case of the initial rounds of development. The criteria were selected by the local government and two routes were available: one gave preference to applicants with commitment in the field of sustainability (e.g. building with renewable building material or greater carbon reduction plans); the other preferred local citizens with lower levels of income. This was scored on a number of criteria based around need, including where the applicant lived, and awarded more points to those who planned to build houses with PV, battery or other sustainability measures. If selected, the applicant could then secure private finance to build the house, with the development company providing a development monitoring role to ensure that the standards the applicant was contracted to deliver were met. 

Since its commencement in summer 2024, approximately two thirds of the land is already sold, with further phases ongoing and construction in progress (building permission takes approximately 6 months) and the first new owners are already moving in. 

Conclusion 

A lot has been made of the UK government’s target to build 300,000 homes a year and the likely inability of the market (both public and private) to meet that need. The interesting thing about this German example is that at a very local level, authorities can be proactive in their approach. The development company is unapologetic about capturing the developer’s profit, not frightened by borrowing private sector money in order to achieve its aims, and also has the needs of its local community in mind, as well as commitment to its sustainability aims. 

Clearly we have a more challenging landscape around planning and land assembly/CPO which may elongate a similar process and increase costs. I imagine the private market may have a strong opinion if local authorities started undertaking direct development in locations where there was no market failure. It certainly did when local authorities started out-competing investors to buy income-producing assets through using what they deemed to be preferential borrowing rates via the Public Works Loan Board. 

Nevertheless, unless we change something, it is generally accepted that the 300,000 target will not be achieved. On that basis, we should look carefully at the routes being undertaken elsewhere, especially where the public sector is taking the initiative. Hopefully, we can then learn from that best practice as part of the solution to the issue that does not appear to be going away any time soon.