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EXPLAINED: Why renting is still cheaper than buying in Germany

Imogen Goodman
Imogen Goodman - [email protected]
EXPLAINED: Why renting is still cheaper than buying in Germany
Apartment buildings in Dresden's Old Town. Photo: picture alliance/dpa | Robert Michael

Rents have been soaring in Germany for years - especially in the major cities. But experts say tenants may get more for their money compared to people who buy their own property.

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What's going on?

Germany's worsening housing crisis is having a big impact on both renters and buyers. This year, the German tenants' association warned that renters could face dramatic hikes in rent over the coming years, with living costs rising at a much faster rate than household incomes.

Though the country has relatively strong rental protections in place, the association warned that landlords could use all the legal mechanisms available to them to increase rents as much as possible. If the current trend continues, the number of people who have to spend 40 percent or more of their income on rent will increase to over five million households in the next few years, the association said.

This is largely because of the major shortages in affordable housing, with an estimated 700,000 homes missing in Germany this year. 

Against this backdrop, you may think that the time is right to get out of the rental market and look at buying your own home. But a new study suggests that the financial burden is currently even higher for people who want to get on the housing ladder. 

In fact, according to the research by credit insurer Allianz Trade, buying property is  "significantly more expensive than renting in Germany". 

READ ALSO: Which parts of Germany have the highest (and lowest) costs of living?

Even if rents were raised by the legal maximum of 20 percent next year compared to 2023, the difference between average mortgage repayments and average rents would still come in at €381 per month.

Why is it so expensive to buy right now?

On the face of it, buyers are in a pretty good position in Germany right now. Since Russia's invasion of Ukraine, the property market has taken a sharp hit that has put an end to years of soaring prices. 


But although asking prices are now dropping and demand is sinking, buyers now have to contend with high interest rates that can add hundreds of euros onto their monthly mortgages. Compared to September 2022, when interest stood at just 0.75 percent in the Eurozone, rates had hit a dizzying four percent by September 2023.

READ ALSO: Where are property prices in Germany falling the fastest?

This hike has by far outstripped the benefits of lower property prices, which on average have fallen by around ten percent year on year.

According to Allianz, however, property prices would have to drop by 20 percent while rents went up by 20 percent in order to make a property purchase worthwhile in 2024. Either that, or mortgage rates would need to fall to 1.78 percent - less than half of the current four percent. 

Euro notes lie next to some house keys on a table.

Euro notes lie next to some house keys on a table. Photo: picture alliance/dpa/dpa-tmn | Andrea Warnecke

This goes some way to explaining why as recently as 2022, buyers were still getting a better deal than renters in most parts of Germany.

An annual study released by the German Economics Institute (IW) found that renters in more than two-thirds of regions paid more than their property owning counterparts back in 2022.

READ ALSO: REVEALED: How the cost of renting in Germany compares to home ownership

In 328 of the 401 regions and cities studied, owners paid an average of €10.04 per square metre for their housing compared to €10.90 for renters in similar properties.

However, by 2023, this had almost exactly reversed so that two thirds of regions were more favourable to renters than buyers.

Is it still worth getting on the housing ladder?

Though property prices and interest rates undoubtedly play a role in the decision over whether to rent or buy, experts say the decision should also be a personal one.

"A number of other factors (beyond rents and interest rates) also play a role," financial expert Dirk Eilinghoff wrote on personal finance website Finanztip. "Some - such as the interest rate on your equity - can be expressed in hard figures, others are an expression of your personal preferences and life choices."

According to Eilinghoff, it's important to calculate the monthly mortgage repayments compared to your monthly rents - but that doesn't give the full picture.


Regional developments could lead to house prices rising over time, which could make property a good investment - though there also be fluctuations.

READ ALSO: REVEALED: The German regions where house prices have doubled in six years

In addition, while tenants will have to pay rent for life, most people will have paid off their mortgage by the time they retire, making it a good way to save for the future. 


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