OPINION: Germany's ruthless housing market is tough on new tenants - but there are winners

Brian Melican
Brian Melican - [email protected]
OPINION: Germany's ruthless housing market is tough on new tenants - but there are winners
Four of Germany's most expensive apartments in 2022 were sold in Berlin. Photo: picture alliance/dpa | Christophe Gateau

Germany may be falling short of its homebuilding target but still positively stands out in comparison to other European countries. Brian Melican explains why things are not so grim for both buyers and renters - unless you are a new tenant.

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So it’s now official. This week, Federal Housing Minister Klara Gleywitz admitted that Germany will not achieve the target of 400,000 new homes annually laid out in the coalition agreement. It’s decent of Ms. Gleywitz to come clean here – decent and wholly necessary, because the target, already over-ambitious when conceived, had begun to look more like a pie-in-the-sky five-year plan out of a command economy than something a minister should remain committed to. 

Even in pre-war times, ramping up home-building to that degree would have been nigh-on impossible. In 2020, after a decade of lowest-ever interest rates and benign market conditions, the construction industry was running at full capacity and produced 306,000 new homes. That was the sector’s best effort in the best of all economic worlds, and by 2021, completions had declined to 293,000 due to a dearth of suitable property and a lack of builders. So it is no surprise that, since the inauguration of her new ministry – created to demonstrate just how serious the new government was about housing – Gleywitz has never offered a credible account of just how a sector facing a desperate shortage of land and labour should up its output by almost 50 percent.


It’s important to remember, too, that homes are completed several years after they are first planned. So figures for 2022 (down to 250,000) represent the market as it was between, say, 2017 and 2019 – i.e. back in the halcyon days of milk, honey, and limitless finance. And even then, applications for permits were falling back. In the intervening years, the climate has got considerably worse. After a pandemic shock in 2020 and anaemic German economic performance in 2021, in 2022, Russia’s attack on the Ukraine sent the materials market haywire, interest rates soaring, and economic confidence tumbling. The result was that, within months, applications for construction permits declined yet further – and permits do not automatically translate into completions, either, especially as scarcer materials or increased costs lead to projects being delayed or cancelled.

READ ALSO: How property prices in Germany are sinking dramatically

Flats near the Frauenkirche in Dresden.

Flats near the Frauenkirche in Dresden. Photo: picture alliance/dpa | Sebastian Kahnert

An impossible target

The only surprise about Gleywitz’ admission is that she is still clinging to the 400,000 target for 2024 when housebuilding activity has dropped so sharply. Maybe she’s discovered a secret stock of energy-intensive building materials produced at pre-gas-crisis prices (because they’re not going to get cheaper again any time soon), or maybe she’s betting on immigrant labourers returning in their droves despite the fact that we treat them like dirt (not bloody likely!).

Regardless, my hunch is that 2022 will represent the high-watermark for the whole of the coming decade. Indeed, I defy anyone to look at the statistics on construction costs, borrowing rates, and permits issued and come to a different conclusion.

What does this mean for the years ahead? How will the shortfall affect homeowners, tenants, and landlords?

First off, we should avoid the usual apocalyptic talk of a “housing crisis”. As I’ve noted previously, Germany’s housing market is tough, but by no means as broken as that of many other European countries. If you’re looking for sky-high asset prices and corruption with rent-controlled stock, head north to Sweden; if it’s an alarming lack of secure tenancies and vulnerability to short-term interest rate spikes you’re after, Britain is our continent’s cautionary tale. Nevertheless, just because housing markets elsewhere are worse, that doesn’t make Germany’s anything to cheer about. And the prospects are about to get markedly less cheery.

READ ALSO: What experts say will happen to the housing market in 2023

House owners in prime position

The most fortunate group are existing owner-occupiers. Although property prices had become over-inflated of late and are now falling, this will not lead to a collapse in the housing market and homes being repossessed. Anyone who bought prior to the craziness of 2020-2021 financed at record-low interest rates and is fine as long as they don’t need to sell up any time soon: interest rates are generally fixed for 10 years in Germany, and for anyone who bought up to 2014, rates on re-mortgaging will still be lower than they were on purchase.

What is more, after a decade of price rises, long-standing owners are sitting on so much equity that they might actually do quite well out of a move now, selling at a mark-up and getting a bargain in return.

Keys to a flat in Germany.

Keys to a flat in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Martin Schutt

Another group who will do alright are Germany’s buy-to-let landlords, a group which grew rapidly over the last decade as borrowing was cheap and rents were rising. Most of them, too, are mortgaged for the duration and making good money out of their investments. As long as they weren’t planning to cash out any time soon, they’re fine (and, like owner-occupiers, can still exit well if they bought before 2014).


Nevertheless, 2022 was the year that put an end to leveraged buy-to-let in Germany for the foreseeable future: interest rates have shot up without property prices falling enough to compensate; and rents, heavily-regulated in Germany, cannot rise fast to make new investments attractive. This is good news for some other groups, of course: fewer prospective landlords means reduced competition for other buyers and fewer apartments being spruced up and re-let at higher rents (a boon for tenants on a budget).

READ ALSO: Is it better to buy or rent in Germany right now?

Indeed, for tenants, things could be worse: yes, rents will eventually rise as inflation puts up indexed contracts and these, in turn, drag up the averages on which other rent increases are predicated (the famed Mietenspiegel). This process, however, will take place gradually over the next few years, and tenants’ earnings will rise in that time.

We are not, mercifully, in a UK-style market of annual “rent reviews” and 28-day no-fault evictions. Although price rises will cause some discomfort for a minority, legal protections are in place and housing benefit is available; there will not be a rash of people losing their homes.


New renters get toughest deal

The shitty end of the stick, as ever, goes to anyone currently looking for a new rental. For prospective tenants, prices have already gone up as re-letting is one of scrupulous landlords’ few opportunities to account for inflation. At the same time, there are now more prospective tenants than there were last year because another unfortunate group – would-be buyers – have seen their financial calculations go up in smoke.

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The result is that couples with a young child, for instance, who, a year ago, would have bought a house are now looking for a slightly larger flat rental instead, pushing up demand while supply, as we have seen, is falling…

READ ALSO: Why falling property prices in Germany mean tougher times for tenants

Renovated flats in Greifswald

Renovated flats in Greifswald, Mecklenburg Western-Pomerania. Photo: picture alliance/dpa | Stefan Sauer


Beyond interest groups, what does all this mean in the broader societal sense? Something quite simple: ministers like Gleywitz should start being honest with people. The supply of new homes will keep going down before it goes back up. Our continent is at war and the planet is burning. As such, both our government and we as citizens will have to prioritise.

State efforts will need to be focussed on rebuilding the dwindling social housing stock in order to serve the most vulnerable in society. Many others will just have to make do with a little less space or a slightly less good area than they’d like. This isn’t, however, the same kind of vote-winning message as an arbitrary new-build target, so don’t expect to hear it officially any time soon.



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