COST OF USE OF HOUSING IN GERMANY A Case Study in the light of government guidelines

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1 COST OF USE OF HOUSING IN GERMANY A Case Study in the light of government guidelines Thomas Harborth* ABSTRACT The following essay is for examining cost of use of real estate in a portfolio of an exemplary housing company. Here, the data initially is assigned to individual cost elements and taking into age groups. Then determined using the data, the actual amount of operating costs (as part of the life cycle costs) for the years will be shown. Use the following formation of specific parameters and statistical quantities is shown that monetary variable assume operating costs and how these values correspond with state guidelines of the subsidies for the cost of accommodation of needy households as a comparison value. Key words: Operating costs; Cost of accommodation; Statistical quantities. JEL classification: H23 Introduction Basically, it should be noted, it was seen in the construction industry for many years there was no connection between the phases of planning, execution and use. Therefore, each phase was considered independently and made the optimization of the actor for this phase. With the ever increasing rise in occupancy costs in recent years, the calculation of life cycle costs will more important [1]. At the beginning of the life cycle of a real estate decisions are made that affect the remainder of the costs significantly in the use phase (Chart 1). A subsequent cost reduction in the use phase can be achieved mostly with a much larger cost. As in conventional construction often with the end of a phase change of the protagonist and thus no combination of construction and use phase is formed, is confronted by the protagonist does not have a duty to optimize the life cycle costs. Rather, there is interest among key players in four of the five phases is to maximize the profits after the end phase. With the rising costs of use (particularly energy) but it is for the owner / user (Phase 4) very important to minimize life cycle costs in order to maximize the efficiency of a building, Chart 1 shows the five phases and their respective key players. * Dipl.-Ing. (FH), Dipl.-Wirt.-Ing. (FH), LL.M. (oec.), MBA, Institute of Management, Slovak University of Management in Bratislava

2 Chart 1: Life cycle, key players and costs No. Phase of the lifecycle of buildings Key players Costs 1 Development Builder Costs for studies, Market research 2 Planning Architect / Planners Costs of planning 3 Realization Construction company Manufacturing 4 Use Operator / user Usage costs 5 Deconstruction Recycler Costs of decommissioning Source: Own classification To avoid the change of key players after each phase and the resulting conflict of interest, the construction industry is currently on Public Private Partnership (PPP) models. Since at PPP models will not come to any stage to change the actor, is also a greater interest to consider the minimization of life cycle costs in the development and planning phase in order to keep costs in the use phase to a minimum. It is interesting in this connection that Germany applies the "principle of efficiency and economy," according to 6 HGrG [2], but rarely a calculation of the life cycle costs is carried out in public construction projects. To perform a calculation of the life cycle cost of a property can, and then to calculate the most efficient and most economical option, it is necessary to collect, all costs incurred in the phases of the life cycle of a property. Problem and objectives Currently there are no uniform standards for calculating life cycle costs. However, as more and more the interest in the life cycle costs, is a standardization of the life cycle of increasing importance. Existing standards and guidelines that deal with life cycle costs relating to real estate, are heterogeneous. Due to the rising utility costs, the importance of optimizing the cost of use because they represent a significant share of the cost of a property. At the same time the interest of the public to obtain a basis for the subsidy for the cost of accommodation as part of the unemployment benefit (Chart 2), calculate budget needs to be. Chart 2: Cost of accommodation as part of unemployment benefits Cost of accommodation Rent Recoverable operating costs Source: Börde, 2011 Example (District) 4.40 EUR/m² 2.50 EUR/m² The present work is to serve with their results of the investigation to assess comparable to that of recoverable operating costs of residential properties in the area of the use phase. The concept of recoverable service charges is derived from the cost of regulation [6]. Operating costs are the costs incurred by the owner or leaseholder of the property or leasehold estate created on an ongoing basis, administrative costs for the operation and maintenance costs are not belong to this. These costs are taken into the rent, which is not covered here. The measured data are first the individual types of costs allocable operating costs associated. Then determined using the data, the actual amount of the operating costs of the

3 years , with the formation of statistical parameters, comparisons can be made to the state guidelines for the cost of accommodation. Life cycle costs, utility costs, operating costs Basics and Definitions Life cycle costs of buildings of different uses (Chart 3) provide a mathematical tool for financial synopsis of initial and subsequent costs. This term all costs incurred throughout the life period of the initial investment to the end use of property are summarized in this term. The life cycle of a property is derived on the human life cycle (cycle of life), as well as the birth of the (development) and even death (removal) is divided into several phases. Chart 3: Property use Use Examples Commercial property Non-manufacturing sector Management of the manufacturing sector Social property Care Residential real estate Housing Source: Own classification The following information dealing with the relevance to the cost of accommodation only with the consideration of recoverable operational costs for residential properties (Chart 4). No. Chart 4: Life cycle phase use and operating costs Phase of the lifecycle of buildings Costs 4 Use Usage Costs Source: Own classification Technical standards for calculating life cycle costs Subgroup on the operating cost regulation Recoverable operating costs Non-recoverable operating costs Technical standards are the rationalization, quality assurance, safety and communication [3] There are national and international standards, which deal with the concept of life cycle costs (Chart 5).

4 Chart 5: Technical standards for life cycle costs Standards ASTM E 917 NS 3454 ISO DIN 18960: GEFMA 200 BetrKV Description American Standard: Standard Practice for Measuring Life-Cycle Costs of Buildings and Building Systems Norwegian Standard: Life cycle costs for building and civil engineering work principles and classification Buildings and constructed assets Service life planning: Part 1 11 German Standard: Usage Costs in building construction Costs in FM (Facility Management) Operating expenses as a legal standard regulation: Regulation on the establishment of operating costs Source: Own classification Example 1: German standard DIN 18960: Building construction cost planning is to use the DIN 18960: used. It shall identify and outline the use of cost type. Specific operational and production-related personnel and material costs are not to be recorded with the DIN 18960: , if it is possible to separate them from the user cost (Chart 6). Since the user costs are composed of the most cost-effective (imputed cost) and the budget relevant costs, the user cost of these two groups according to DIN 18960: types of costs are allocated [5]. Chart 6: Subdivision of the use of cost groups to Level 2 (DIN 18960: [4]) Cost group Description Effective Cost/- Output 100 Capital cost Effective Cost 200 Property management costs Effective Output 300 Operational Cost Effective Output 400 Repair costs Effective Output Example 2: GEFMA 200 Source: DIN 18960: Nutzungskosten im Hochbau Guideline The German Facility Management Association ev (GEFMA) has been founded in 1989 and sees itself as a German network of decision makers in facility management (FM). It is involved in the standardization work in facility management. The directive GEFMA 200, a cost breakdown structure for the uniform collection and processing costs over the entire life cycle of objects is offered. On the basis of GEFMA 200 can develop facilities management (FM) organizations own charts of accounts for their specific requirements. The following GEFMA 200 in their construction of GEFMA 100, hereby uniformity in the structure of FM processes and costs will be achieved (Chart 7). Cost categories for which the DIN 276-1: "Building costs" is applicable, were moved to the GEFMA 200 in order to expand possibilities and detailing the phases were given.

5 Chart 7: Cost breakdown structure GEFMA 200 Phase Description 0 Cross-phase line 1 design phase 2 planning phase 3 construction phase 4 commercialization phase 5 procurement phase 6 Operation and exploitation phase 7 Conversion / redevelopment, Renovation / modernization 8 Vacancy phase 9 recovery phase Source: GEFMA e. V. (2004) Case study operating costs compared Operating costs in general The user costs play in the life cycle of a property a crucial role in the economy, in particular by the cost of accommodation for the budget cost of legal parameters. With rising energy prices in recent years and the likelihood of further increases in operating costs play a crucial role in the profitability of a property. As already indicated in Section 2, operating costs are the costs incurred by the owner or leaseholder of the property or leasehold on the land or the use as prescribed by the building, the outbuildings, equipment, facilities and the land continuously; administrative costs and maintenance and repair costs are not included as operating costs. A list of the allocable costs can be found in the following sections. Building stock of the exemplary housing company In the following section, first the data, which prepared by the housing companies (Chart 8) were made available for evaluation. These were, first, to present the inventory of residential properties as well as their cost accounting. Chart 8: Characteristics of the housing company, as of 31/12/2011 Features Description Corporate form Limited Liability Company shareholder Municipal Own administrative units 1,516 Managed administrative units About 2,000 Special features Subsidiary third-party management Subsidiary thermal and photovoltaic contracting For an evaluation of the residential building stock and the operating costs that are attributable to the life cycle stage of use, it was necessary to the residential real estate, first with the help of the building typology (Chart 9) in class of building age [5] to classify and differentiate the

6 status of the restoration (Chart 10). For the formation of characteristic values that allow a statement on the aggregate amount of operating costs, the first of recoverable operating costs have been called, the operating costs were taken into the accounts. Chart 9: Building typology Class of building age Description B before 1918 C D E F H M ab 2009 Source: Möller, S Chart 10: Status of the restructuring Status of the reconstruction Partially reconstructed (after 1990) Full reconstructed (after 1990) Not reconstructed Description At least one (max. four) of following seven criteria are met: Heating Second Tiles in wet areas, Window, Plumbing (strands), Facade with upgraded insulation, Entrances, Electrical system in accordance with regulations At least five of seven criteria listed before criteria are met. Non-residential buildings are modernized, which are solely maintenance or repair work performed. Source: Möller, S Recoverable operating costs using the example To determine the actual year, the tenant-recoverable cost of the example it is necessary to filter the recoverable operating costs from the database of the housing company and allocate the respective costs. Below the recoverable service charges are mentioned, which are the basis for the operating expenses of the tenant: recoverable operating costs, drainage, heating costs, including maintenance, lift Maintenance and operating costs, garden maintenance, garden care playground, cleaning (elevators, hallways), refuse collection,

7 Number of objects garbage fee strictly personal, property tax / street cleaning, flea and tick tontrol, sidewalk cleaning, lighting, chimney cleaning, property and liability insurance, community antenna systems, maintenance of heating / gas cookers, gutter cleaning, heating billing service bills. The following three charts (Images 1-3), the current inventory of property, residential units and renchart floor space of the exemplary housing company ever class of building age and status of the restoration is presented. In image 1, the number of objects per class of building age is shown. It can be seen that most objects exist in the fully reconstructed class of building age E, followed by the class of building age C, F and H. In the class of building age F and H are only partially reconstructed many objects can be found. This is largely to prefabricated buildings, which already meet requirements due to better insulation of the former regulations. In case of further rising energy costs a full reconstructed of these objects for a good rental potential will be necessary. Image No. 1: Number of objects per class of building age related to the reorganization status full reconstructed partially reconstructed not reconstructed 0 B C D E F H M Image 2 shows the proportion of housing units and their relation to the status of the restructuring class of building age. It can be seen that have been reconstructed in the E class of building age almost all residential units already. The class of building age F and H have still a large inventory of residential units to be reconstructed. To achieve a reduction in operating costs, particularly in the area of heating is required in the near future redevelopment of residential units. This can also increase the attractiveness of future tenants.

8 Residential area m² Residential units Because of demographic changes in Germany and the exodus of young people in the area of "new states" it is necessary to empty apartments in the area of class of building age B and C, the not-reconstructed residential units, a demolition think or perform a complete conversion to this to the requirements of the ever-increasing number of elderly tenants meet. Image No. 2: Number of housing units per class of building age related to the status of the restructuring B C D E F H M full reconstructed partially reconstructed not reconstructed As a complement to Images 1 and 2 in relation illustrated in Image 3, the size of living space on the class of building age and the status of the restructuring. Image No. 3: Size of living space per class of building age related to the status of the restructuring full reconstructed partially reconstructed not reconstructed 0 B C D E F H M The current stock of residential units is 1516 dwellings. In Image 4, the share is shown that each class of building age to the 1516 residential units occupied. The largest share with 32.12% of residential units is therefore the class of building age F. In it can be seen that the class of building age F, E, C and H form with 93.59% for the largest share of residential units.

9 Image No. 4: Percentage of housing units per class of building age 3.30% 2.37% 15.50% 19.85% 32.12% 26.12% 0.73% B C D E F H M Database The data are those of the billing period After calculating the operating costs for all units of the housing company could be determined the amount of total operating costs for the accounting years Operating costs were estimated for each object, as can be seen exemplified in Chart 11. Chart 11: Extract the assembled operating costs for 2007 Unit Property Code Name of the house Sum of the operating costs 3 1 An der Wasserrenne 1 8, An der Wasserrenne 3 5, An der Wasserrenne 5 5, The operating costs for the accounting years for the stock of residential units can be found in Chart 12. Chart 12: Operating costs of the billing period , based on all residential units Accounting year Operating Costs [EUR] ,737, ,816, ,787, ,747,231 Analysis and formation of characteristic values To compare the recoverable operational costs from rent, it is necessary to generate appropriate parameters from the individual cases, which then allow a statement about the level of operating costs per month per m². For the calculation of meaningful parameters have sufficient data are available. Exemplary data and the corresponding distributions on the operating cost elements are shown in Image 5.

10 Image No. 5: Percentage distribution of operating costs of class of building age B, C, E, F Example of class of building age B 1% 1% 1% 3% 2% 1% 4% 2% 0% 6% 19% Example of class of building age C 2% 1% 0% 9% 5% 4% 5% 29% 60% 45% Gutter Cleaning energy garden care sidewalk cleaning Community antenna systems Property tax / street cleaning heating costs cold water refuse collection garbage fee Example of class of building age E 2% 2% 1% 0% 1% 2% 7% 8% 8% 23% energy sidewalk cleaning Property tax / street cleaning heating costs cold water refuse collection garbage fee Property and liability insurance Maintenance of heating system Example of class of building age F 2% 1% 1% 0% 3% 3% 1% 6% 7% 15% 46% 61% Gutter Cleaning garden care Community antenna systems heating costs refuse collection Property and liability insurance energy sidewalk cleaning Property tax / street cleaning cold water garbage fee energy sidewalk cleaning Property tax / street cleaning cold water garbage fee chimney cleaning garden care Community antenna systems heating costs refuse collection Property and liability insurance Provided by the operating costs of the years by the housing companies, it is possible to form characteristics. Due to the large influence of heating on the total cost parameters were initially set up for the cost of heating (Chart 13). The parameters were first calculated for all objects with heating costs. After this compilation the heating costs per square meter of rentable living space were calculated for each object. Thereafter, a review of the development of the heating costs per m² was performed. This was used to determine highly divergent values, which were used in the sensitivity training. Then, these values for each class of building age and the respective remediation as summarized by the average value that results from the 4 years to obtain. This resulted in the following characteristic values for heating costs per month per m² of rentable living space relative to the class of building age and the status of the restructuring. In determining the heating characteristics of class of building age no heating characteristic value for the class of building age D was formed, because this is not enough data were available.

11 Chart 13: Heating characteristics of class of building age per m² of rentable living space Class of building age Full reconstructed Partially reconstructed Not reconstructed B ,34 C not enough data D not enough data not enough data not enough data E not enough data F not enough data H not enough data M 0.59 new Building not enough data With the exception of the building of class of building age D in Chart 14 for all of recoverable operational costs, aggregated in heating, cold water and other operating costs, the means and standard deviations of the invoiced value for the years are taken. When summing the Gaussian error propagation was observed: The mean values of heating, hot water and other operating costs were added, was calculated the standard deviations from the square root sum of squares of standard deviations. Chart 14: Cost characteristics of living of class of building age per m² of rentable living space Operating Costs [EUR/m²a] B C D E F H Heating Mean values not enough data Standard deviations Cold water Mean values not enough data Standard deviations Other operating costs Mean values not enough data Standard deviations Sum mean value Sum standard deviation not enough data (Gaussian error propagation) Cost of accommodation Cost of accommodation is part of the unemployment benefit [9]; unemployment benefit consists of a so-called rule requirements, a possible increased demand and cost of this accommodation. The actual cost of accommodation consist of rent, the fold-down operating expenses and are paid to the extent they are appropriate. These costs are in local authority of counties and are calculated according to local conditions, they are handled fundamentally different and calculated.

12 Recoverable operating costs compared with the cost of accommodation In the following comparison, only the recoverable service charges are included. In Chart 3 were already given by the county paid values. By evaluating the statistical parameters from the data collection in the exemplary housing company results in the following comparison (Chart 15). Cost of accommodation Recoverable operating costs Chart 15: Compared recoverable operating costs Example (District) [EUR/m²mon]/ EUR/m²a 2.50/ Data [EUR/m²mon]/ EUR/m²a Average / Data [EUR/m²mon]/ EUR/m²a Standard deviation / This comparison is based on data from it should be noted that values and operating costs are balanced reality. The data collection has shown that the actual nonrecoverable operating costs are higher than those paid by the cost of accommodation. The author believes that future evaluations are expanding and refining it. In particular, it should be noted that from the perspective of the state is not a blanket support under the cost of accommodation is to be done, but to include, among others, the structural situation is, thus, for example, lower operating costs through energy renovations to the building associated with higher rents. These are offset by cost components have to involved. Conclusion The need for consistent and comparable investigations of the cost of use as a major part in the life cycle of buildings was the view of the state, which represented the cost of accommodation for persons receiving unemployment benefits. In the present work were an example of an exemplary housing company recoverable operating costs from the data of the years and analyzed statistical parameters (mean and standard deviation) is generated. It has been shown to assume that these monetary variable operating costs and how these values correspond with state guidelines of the subsidies for the cost of accommodation for needy households. The data analysis revealed that the actual recoverable service charges are not higher than the cost of accommodation paid by the operating costs. In the future, other parameters in the payment of housing costs are taken into account, particularly the construction, which means in particular the energetic quality of buildings.

13 References [1] Pelzeter, A. (2006). Lebenszykluskosten von Immobilien. Köln, Immobilien Informationsverlag Rudolf Müller GmbH & Co. KG, [2] Haushaltsgrundsätzegesetz vom 19. August 1969 (BGBl. I S. 1273), zuletzt geändert durch Artikel 1 des Gesetzes vom 27. Mai 2010 (BGBl. I S. 671) Law. [3] Deutsches Institut für Normung e. V. URL: [4] DIN 18960: Nutzungskosten im Hochbau Guideline. [5] Möller, S. (2011). Umgang mit Risiken bei den Nutzungskosten im Hochbau. Frankfurt am Main, Peter Lang GmbH Internationaler Verlag der Wissenschaften, [6] Betriebskostenverordnung vom 25. November 2003 (BGBI. I S. 2346, 2347) Law. [7] GEFMA e. V. (2004). GEFMA 200 Guideline, Kosten im Facility Management. [8] Jobcenter Börde - Merkblatt zu den Kosten der Unterkunft und Heizung beim Bezug von Arbeitslosengeld II, (Job Center - Fact Sheet on the cost of housing and heating in receipt of unemployment benefit II)