Company-specific Disclosure: “Living at Fair Prices”

ESRS 2 SBM-3 – Material Impacts, Risks and Opportunities and Their Interaction with Strategy and Business Model

Material Impacts, Risks, and Opportunities

Within the scope of our materiality assessment, we identified three material impacts, risks and opportunities (IROs) related to the company-specific topic of “Living at Fair Prices”:

• Contribution to more affordable homes for tenants by adhering to regulatory frameworks
• Contribution to more affordable homes for tenants through new construction and development activities
• Financial risk due to changes in regulatory frameworks (rents and standards)

The tangible and positive impact “contribution to more affordable homes for tenants through adhering to regulatory frameworks” pertains to our core business area and outlines the effects of strictly adhering to regulatory frameworks (e.g., rent indices, standard local comparative rents, rent caps, price controls) on the reliability and stability of landlord-tenant relationships, thereby securing affordable homes.

Through additional measures for various customer segments – such as special regulations for elderly people, hardship management and the use of social managers, rent caps after refurbishment, offering publicly funded housing – we address low-income and vulnerable customer groups so that they can also remain in their apartments for as long as possible or continue to have access to affordable homes. 

The rental of homes forms the core business of Vonovia. Rent adjustments aligned with rent indices are a necessary and common tool to meet the economic expectations of our investors while also creating room for investments and tailored rental offerings designed to appeal to the widest possible range of customers. Qualified rent indices are created using scientific methods, providing a fair representation of the rental housing market. Both landlords and tenants are involved in their creation and formally recognize the rent index afterward. For a stable and reliable housing market, such regulatory frameworks are thus essential to ensure security and continuity for tenants and landlords—without rendering necessary investments economically unviable. By complying with regulatory standards and requirements, Vonovia makes an important contribution to this stability. Even under changing framework conditions, we do not anticipate any significant changes to the business model or major adjustments to the strategy.

This allows us to ensure that our tenants can rely on the stability of rent developments in their homes. Our goal is to build long-term customer relationships and minimize turnover in our portfolio as much as possible. Through additional measures, such as offering price-controlled homes or individual support, we aim to further strengthen this safety net and make homes affordable for as many people as possible.

Our focus on a broad target group of tenants is a core component of our strategy and is reflected in our portfolio and the products we offer, which cater to our customers’ requirements for modern home amenities. On average, rents at Vonovia in Germany rose by 3.8% during the reporting year, remaining below the increase in real wages, which stood at around 5.4% in 2024 (see chapter entitled “Portfolio in the Property Management Business”).

The observation period for the impact focuses on a short-term horizon (reporting year + following year) as it is classified as tangible. Since rental agreements and the impacts of rental price developments also have an impact in the medium to long term, a corresponding follow-up effect can be expected for these tenants over periods, as well.

The measures implemented by Vonovia in the area of affordable homes are directly related to the positive impact described here. By shaping rental prices, we exert a direct influence on the perceived or actual affordability of homes.

This tangible and positive impact “contribution to more affordable homes for tenants through new construction and development activities” pertains to our core business area and describes the effects of creating new, demand-oriented and – in part – subsidized homes in neighborhoods (Development to hold). These activities help counteract the shortage of available homes and mitigate rising rents, particularly for existing tenants. This impact is tied to local markets where we can offer new construction to a variety of target groups. This impact is tied primarily to urban agglomerations characterized by high demand for homes.

As such, we view this as an opportunity for our company, which we aim to capitalize on and amplify through our development activities. The scale of this impact is heavily influenced by the company’s ability to invest, which has continued to be constrained due to unfavorable interest rates and significant increases in construction costs. Over the past two years, we have responded by reducing construction activities, which we now plan to expand again.

By increasing the supply of homes through new construction, we aim to alleviate pressure on the rental market overall. This strategy reflects our commitment to catering to different customer segments, which is evident in our development approach. Generally, we apply mixed calculations and combine freely financed and price-controlled new home construction for our own portfolio (Development to hold) and for sale (Development to sell). We also remain focused on optimizing construction costs to provide sustainable, affordable homes for diverse target groups while introducing a share of subsidized homes to the market. The impacts of this are thus rooted in the company’s strategy and business model. The observation period here also focuses on a short-term horizon (reporting year + following year) as the impact is classified as tangible. However, a long-term positive follow-up effect for tenants is also expected, as the business model – and especially our development activities – ensures continuity regarding the impact, which is anticipated to persist in the medium to long term. Through our development activities, we exert direct influence on this impact.

This medium-term financial risk due to changes in regulatory frameworks (rents and standards) relates to our core business area and describes the potential effects of more stringent regulations on rents (e.g., rent caps or rent controls) and other regulatory measures (e.g., standards for new construction and refurbishment, requirements of climate change mitigation) concerning the recoverability of investment expenses and ancillary costs for the company. Such changes could restrict Vonovia’s flexibility in areas such as rental pricing and cost transfers.

While a stable and reliable regulatory framework for rents that provides sufficient leeway for economic operations can contribute to stable rental relationships, additional stringent restrictions on rental pricing options may narrow this flexibility. This constrains an economic rent-setting process and the necessary investment activities – for example, for climate change mitigation, contemporary standards, or new construction for various customer groups and mixed calculations. This, in turn, impacts the economic provision of affordable homes against the backdrop of rising construction standards.

No financial effects on the company’s financial position, performance, or cash flows are identifiable or expected in the reporting year or the following year due to the risk described above. Consequently, there is no significant risk of adjustments to the carrying amounts of the assets and liabilities recognized in the corresponding financial statements.

Resilience of Our Business Model

The persistently high demand for homes in urban agglomerations is not expected to change within a foreseeable timeframe. Given this continuously strained market situation, large housing providers like Vonovia remain in the public interest and under scrutiny—any non-compliance with regulatory frameworks would likely result in heavier sanctions. At the same time, the low tenant turnover resulting from the high demand ensures stability and creates room for supplementary measures aimed at safeguarding the affordability of homes.

The business model remains robust in relation to the impact of “Contribution to more affordable homes for tenants through adherence to regulatory frameworks” and the risk of “Financial risk due to changes in regulatory frameworks (rents and standards),” given the consistently high housing shortage and the associated public focus on the company.

In the context of the impact “Contribution to more affordable homes for tenants through new construction and development activities,” the past two years have demonstrated that a rapid rise in interest rates and construction costs significantly affects the implementation of the development business model. However, given the market situation, there are no signs that the business model fundamentally needs to be rethought.

The resilience of Vonovia’s strategy and business model is analyzed and evaluated annually as part of risk management. The risk management time horizon covers the medium term and is supplemented by the planning level to address short-term developments.