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Germany aims to boost housing construction with tax incentives

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Chancellor Angela Merkel's cabinet will provide tax incentives to investors who build new flats in urban areas, in a drive to tackle a drastic shortage of affordable housing aggravated by a record influx of refugees, officials said on Tuesday.

[BERLIN] Chancellor Angela Merkel's cabinet will provide tax incentives to investors who build new flats in urban areas, in a drive to tackle a drastic shortage of affordable housing aggravated by a record influx of refugees, officials said on Tuesday.

The government plan is expected to give Germany's booming construction sector an additional push, with builing companies such as Patrizia Immobilien and Hochtief among the beneficiaries.

More than a million migrants arrived in Germany last year, most fleeing war and poverty in Syria, Afghanistan and Iraq. With many sleeping in makeshift accommodation, there are growing concerns about how to house them permanently.

Merkel's cabinet is expected on Wednesday to approve the tax incentive plan, which was prepared by Finance Minister Wolfgang Schaeuble and Construction Minister Barbara Hendricks, government officials told Reuters.

The plan lets investors reduce their tax bills by deducting nearly a third of their construction costs over three years as long as they build new flats in areas where local authorities say the housing shortage is most acute.

To avoid supporting the construction of luxury homes, the tax incentive will be limited to flats with construction costs below 3,000 euros (US$3,273.90) per square metre. Private investors can make tax claims for no more than 2,000 euros per square metre.

The incentive, applicable for flats with a building permit granted between 2016 and 2018, will cost the state more than four billion euros in the coming years and is expected to lead to the construction of up to 100,000 additional flats.

Even before the refugee numbers started to increase sharply last summer, there was an estimated lack of 800,000 affordable flats in urban areas.

This year, nearly 290,000 new flats are due to be built, but experts say this is not enough to meet demand from a growing urban population and the rising number of refugees, meaning that more than 400,000 new flats are needed annually.

In addition to the tax incentives, Hendricks has therefore called for the government to double its funding for public housing to two billions euros per year.

REUTERS