The houses of the baby boomers could soon come onto the market. A study available to Handelsblatt in advance shows the consequences for all 400 German districts and cities.
Frankfurt. “Young family is looking for a cheap three-room apartment”: Ads like this can often be found in Germany’s major cities. Affordable living space is rare, especially in metropolitan areas. But could demographic change partially solve the problem on its own in the coming years?
The idea sounds plausible at first: the baby boomers are retiring, the children have long since moved out, the owners are getting older - and at some point their houses and apartments will come on the market. Experts speak of the “Silver Tsunami”.
Now the German Economic Institute (IW) has made new calculations. A study by Cologne researchers for the Association of Sparda Banks, which is available exclusively to Handelsblatt, analyzes the possible consequences. For all 400 German districts and cities, it shows where demographic change could put real estate prices under pressure - and where it probably won't.
“The demographic change in the real estate market is real,” says Pekka Sagner, real estate expert at IW and author of the study. “The proportion of owner households aged 65 and over who could potentially sell their properties over the next few decades is around 28 to 32 percent in most federal states.”
However, the range between the regions is large. The leader among older owners is the city of Wilhelmshaven with 38 percent, followed by Dessau-Roßlau with 37 percent. Baden-Baden, Kempten and Bremen each have 36 percent.
At first glance, this could suggest that many properties in these cities will change hands in the coming years. The Handelsblatt had already reported in detail about the possible effects in August.
But a second number is at least as important for the price development: How large is the group of potential buyers? For the first time, the IW has superimposed these two developments in its new study. “Potential supply and potential demand must also match spatially,” says Sagner.
In economically weaker and more rural regions there are often many older owners, but comparatively few younger households looking for home ownership. In the metropolises the situation is reversed.
The study considers tenant households between the ages of 30 and 44 as potential buyers. This age group is particularly concentrated in economically dynamic centers. Munich, Stuttgart and Frankfurt each have around 29 percent of renter households in this age group. Düsseldorf and Cologne are also high at 27 percent, Berlin and Hamburg at 26 percent each.
This results in a contrast: Where there are a particularly large number of older owners, the greatest sales and price pressure risks do not necessarily arise. What is crucial is whether there are enough young buyers at the same time to keep the market stable.
In many smaller and rural regions, the number of older owner households already exceeds the number of potential younger buyers. In 300 of the 400 districts examined, the potential supply from owners aged 65 and over exceeds the potential demand. “If the latent supply is limited more narrowly to older households aged 75 and over, there will only be a mathematical surplus in 91 districts,” says Sagner, however.
“Young tenant households who want to purchase property can expect significantly more offers from older owners to come onto the market in the next few years, especially in the South West Palatinate, Kusel, St. Wendel, Kronach and Freyung-Grafenau,” says the IW expert.
In such regions, generational change can actually lead to structural oversupply and thus to falling prices. If numerous houses come onto the market at the same time while the number of potential buyers decreases, the pressure on sellers increases. This is particularly true for regions with weak population development, less economic dynamism and already high ownership rates.
The situation is completely different in the metropolises. Berlin is an extreme example of this. There are around 90,000 owner households aged 65 and over compared to around 434,000 tenant households aged between 30 and 44. The possible supply from older owners is mathematically 79 percent below the potential demand.
Hamburg also has a significant disproportion: the possible supply there is 68 percent below the potential demand. In Düsseldorf and Munich the gap is also 68 percent, and in Cologne it is 64 percent. Stuttgart comes to minus 51 percent. Frankfurt is at minus 77 percent.
According to the study authors, this is crucial for price developments. Even if more properties owned by older owners come onto the market in these cities in the coming years, that alone is unlikely to be enough to eliminate excess demand. In Frankfurt, for example, there are around 21,000 older owner households compared to 90,000 potential younger renter households.
“The study shows that the strong pressure on the housing market in metropolitan areas will not ease,” says Florian Rentsch, board member of the Association of Sparda Banks. "The so-called silver tsunami is more of a myth. There will be no uniform German real estate market in which the baby boomers automatically cause prices to fall."
For the metropolises, the generational change represents an additional market opportunity rather than a fall in prices. Apartments and houses that come onto the market through inheritance or sale can increase the supply. But they encounter a large number of households looking for property. The demographic effect alone is therefore unlikely to be enough to resolve the structural shortage in large cities.
According to the study, even if the neighboring districts in the surrounding area are taken into account, this does not eliminate the excess demand in the large metropolises. In the ratio of older owners to young tenants, even including the surrounding area, there remains a gap of 308,000 households or 71 percent for Berlin. Munich is down 65 percent, Hamburg is down 48 percent and Frankfurt is down 48 percent. Only Stuttgart is closer to a mathematical balance with a gap of minus 14 percent.
However, the study still makes an important reservation. A 65-year-old owner is not automatically a potential seller. Many older people remain in their current apartment or house even though their children have long since moved out. The study points to low mobility, emotional bonds, transaction costs and a lack of smaller and barrier-free alternatives.
This is also reflected in the living space consumption. Owners aged 65 and over have an average of around 65 to 70 square meters of living space per capita; at 75 years of age it is more than 70 square meters, in very old age groups it is sometimes around 80 square meters. This means that older owners have, on average, almost twice as much living space per capita as available to tenants in the typical phase before the possible purchase of property.
“There is definitely an opportunity for housing policy in the upcoming major generational change in the real estate market in the next 20 years,” emphasizes Rentsch. “Politicians would be making things too easy for themselves if they just rely on demographic change.”
“It would be important to have new incentives, especially for older owners, to leave their current apartment,” he suggests. “Creative ideas” are required. Infrastructure and the connection of rural regions to metropolitan areas should also play a more important role in the future.
“What is now needed is a strengthened structural policy that supports these rural regions in particular in advance of the demographic effects surrounding the boomer generation and prepares them as well as possible,” demands Stephan Kippes from the broker association IVD.
For property buyers this means: anyone who speculates on falling prices due to generational change should pay less attention to the age of the population and more to the relationship between local supply and demand. In regions such as Saarland or rural districts in western Germany, aging can actually lead to increasing seller pressure. In Frankfurt, Munich, Berlin or Hamburg, however, the real estate of the baby boomers is unlikely to be sufficient to eliminate the structural shortage.
