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Germany ‘normalizes’ as house prices rise

Long considered the land of renters, Germany is normalizing and people are increasingly buying their own homes, a new study suggests. This is pushing up prices, with rises of up to five percent expected this year alone.

Germany 'normalizes' as house prices rise
Photo: DPA

Cheap loans and rising incomes are the two main drivers of the trend for Germans to increasingly buy rather than rent their homes, suggests the study by Regensburg University's Institute for Property Economy.

The authors of "German domestic property as capital investment", published on Monday, said that although the market showed some symptoms of a boom, there was no danger of a bubble bursting.

Anticipated price increases would simply make the German market more normal, said Jochen Möbert, property expert at Deutsche Bank, which commissioned the study.

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"In the current year, the price of one-family houses could rise by an average of three percent, and that of new-build flats by five percent," he said. Not only the low interest rates charged on loans for property purchase, but also the continuing demand were responsible, he said.

But other considerations were also playing a role, suggested Tobias Just from Regensburg University. He said that demographics, economic and financial reasons had contributed to an underlying annual three percent price rise in house and flat prices across Germany.

Strong immigration to Germany, continuing urbanization and a clear increase in employment rates had also been factors in pushing up prices, he said, also mentioning the insecure situation for many on the financial markets as a prompt for a flight of capital to property.

Möbert said the typical symptoms of a property bubble such as an over-generous credit system, an overheating of the economy or a clash of price and rent rates were not to be seen.

The real credit growth in Germany is continuing very moderately," he said. "We are far away from a price dynamic like in southern Europe or the USA before the financial crisis."

READ MORE: Berlin to ban holiday lets in city centre 

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HOUSING

Half of big city households in Germany ‘spend over 30 percent of income on rent’

While the rental burden on households has dropped overall over the past two decades, people living in the major cities are still spending a big chunk of their income on rents - with the poorest among the hardest hit.

Half of big city households in Germany 'spend over 30 percent of income on rent'
Newly constructed housing in Frankfurt. Photo: dpa | Sebastian Gollnow

Almost half of the roughly 8.4 million households with a rental apartment in a major German city spend more than 30 percent of their net income on rent, according to a new study funded by the trade union-affiliated Hans Böckler Foundation.

Roughly a quarter of households have to spend at least 40 percent of their income on their Warmmiete (rent including heating costs) and ancillary costs, the study found, while just under 12 percent of metropolitan households spent more than half of their income on rent.

The findings were based on an analysis of the 2018 micro census carried out by researchers from Humboldt University Berlin.

Their analysis also showed that the financial burden of rents on tenants has declined in recent years due to the fact that, even among residents of major cities, incomes have risen faster than housing costs.

Overall, tenants spent some 29.6 percent of their income on rent in 2018, down from 31.2 percent in 2001.

Increased construction activity has at best only slightly improved the housing shortage in recent years, the Böckler Foundation stressed, referring to the study.

There is a particular shortage of small and inexpensive apartments, the supply of which has dropped significantly in recent years, the foundation said.

The Federal Statistical Office (Destatis) has also concluded that rents now place slightly less burden on households overall in comparison with a few years ago.

According to its data, in 2019 just under 14 percent of the population (around 11.4 million people) lived in households that were financially overburdened by high housing costs. The overburden ratio has dropped somewhat since 2014.

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Destatis considers households to be overburdened if they spend more than 40 percent of their disposable income on housing costs – which includes both rents and mortgages. 

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