Götterdämmerung, twilight of the gods, is the real reverberation in the background of German politics in these days; not CDU/CSU-SPD grand coalition policy talks but the coming end of an era, most crucially of Angela Merkel as chancellor. Since the economy should hold steady, implications for real estate are less relevant. But there are some.
Having reached day 134 since the last federal election without a government, the longest delay in the post-war, Germans are principally wondering one thing and one thing only: what is Angie doing? For the chancellor, vaunted abroad for years as Europe's most powerful leader, now looks hesitant, indecisive and exhausted. In office since 2005, the whispers are that Merkel, 63, even before last September's federal election, didn't want the job any longer. To voters it certainly looks that way now.
Negotiations before Christmas for the so-called 'Jamaica' coalition of CDU/CSU, Free Democrats and Greens fell apart because, the smaller parties say, Angie really wasn't read to engage with new ideas about digitalisation or make firm commitments about the environment. This seems borne out by current talks on extending a grand coalition with the Social Democrats - what the Germans universally dub 'Groko' (Grosse Koalition). Negotiators have, for example, quietly dropped Angie's pre-election 'binding promise' to keep to 2020 CO2 emission reductions.
Anything that can be solved with more money has been agreed – most notably what Americans would call motherhood-and-apple-pie issues. These include more funding to support authorised immigrants' family members to join them or child construction credits of €1200 per year per child over 10 years for families saving to buy their first home. The right-of-centre CDU hasn't yet given in to left-wing SPD demands to end or moderate what it calls Germany's two-class medical system between publicly- and privately-insured patients. But it still might.
What have gone by the wayside are far more important issues such as tax reform – so that all Germans could benefit from budget surpluses which otherwise increasingly bloat governments' ever-inventive distribution reach - and broadband for all, promised in 2014 by Angie for this year and far away from the top of her last Groko agenda, let alone from being achieved. "What the Groko is up to is anything but a big play," said Niklas Potrafke, director of Munich's Ifo Center, who produced a survey showing that only one-third of economists support a continuation of Groko.
As if to confirm the mood, the rental cap that Angie publicly said before Christmas was not effective - implying it should be scrapped - has now been overhauled and strengthened. A review, originally introduced by the last Groko in 2015 for five years, is off the table. On new lettings, landlords will be required to report the previous rental level and will be restricted in passing on refurbishment costs to tenants. As well the Groko will crack down on share deals in real estate transactions; it's unclear as yet just how, but for sure through increased taxes.
On residential, the new Groko has so far decided to continue to put billions into social housing, going beyond a self-imposed deadline of 2019 and earmarking €2bn each for 2020 and 2021. On the supply side of private housing it aims to free up more land by allowing local governments to raise the land tax (Grundsteuer) for sites zoned for construction but lying unused as owners speculate over further price rises. Estimates are that around half of some 600,000 house construction permits issued have not yet been implemented.
So far so good and so far probably not particularly eventful for real estate since the German economy continues to boom. Effective full employment has been achieved, meaning that wage inflation will not be far behind. Thus, with floor space in almost every asset type in short supply in Germany, the potential for climbs in property prices, inflation and lending rates are far more important factors for investment and development than Groko or no Groko.
The Big Question too is whether any of these policies will have time to be fully executed. It is entirely possible that, in a party-wide vote for approval due to take place over a few weeks following any provisional coalition treaty, the Social Democratic nationwide membership will be swayed by the fierce resistance of the youth wing to extending any coalition with the Right. Under this scenario SPD Chairman Martin Schulz steps down immediately, undermined by his disastrous showing last September. For Angie's CSU opposite number Horst Seehofer the writing is already on the wall. Prime minister of Bavaria since 2008, he was ousted as party leader in December by the ambitious Markus Söder; the party is chomping at the bit to eject the one and elect the other.
And Angie? Whether, in the wake of an SPD membership rejection, she struggles on for a few months with a minority government or calls new elections on the spot remains moot. She will either step down, risk new elections which promise to go badly - particularly with the Alternative for Deutschland party lurking on the far right - or accept being a lame duck chancellor for a few months of a minority government, perhaps until next September.
Even if SPD leaders prise a new Groko approval out of their grass roots members there is every indication that Merkel will, one way or the other, choose not to serve another four-year term, taking a more gracious leave this year or next. This, in turn, will usher in an entire generational change, sending reverberations through German politics that will be as loud as anything Richard Wagner ever composed. Götterdämmerung indeed.