Rents continue to rise – housing prices are weakening

Given the severe shortage of living space, rents in Germany continue to rise. In the third quarter, new contract rents in apartment buildings rose by 3.5 percent compared to the same quarter of the previous year, show figures from the Association of German Pfandbrief Banks (VDP), which represents around 50 real estate financiers, including Deutsche Bank, Commerzbank, savings banks and Landesbanken. “The situation on the rental market continued to deteriorate,” writes the VDP, which had already observed an increase of 3.2 percent in the second quarter. The situation is getting worse, particularly in major cities, said Managing Director Jens Tolckmitt. The Kiel Institute for the World Economy also recorded sharper increases in rents between July and September.

Unlike rents, residential property prices barely rose or even fell slightly. Houses and apartments were one percent more expensive in the third quarter than a year ago, according to VDP figures, which are based on contracts concluded with more than 700 banks. Single-family homes rose in price by 1.3 percent and condominiums by 2.3 percent. Prices for multi-family homes rose by 0.5 percent, which is also less than overall consumer prices.

The significantly increased interest rates are making real estate financing more difficult, said Tolckmitt. The purchase prices, on the other hand, would be supported by “excess demand for living space”. We therefore welcome the Federal Government's approach to enable faster and cheaper construction with the construction turbo and building type E. Tolckmitt, however, once again criticized the plans to socialize living space in Berlin. “The discussion itself is leading to reluctance to invest and real estate financing.”

Residential properties rose most in price in Hamburg in the third quarter (plus 2.4 percent), followed by Frankfurt with 1.6 percent and Cologne with 1.4 percent within a year. There were small declines in Stuttgart. Compared to the second quarter, prices fell slightly in all seven metropolises, as did the nationwide average. But this is little consolation for buyers, as housing prices have risen sharply in recent years and interest rates on ten-year real estate loans have recently climbed above the four percent mark.

Unlike the VDP, the Kiel Institute found falling purchase prices adjusted for inflation - although not nationwide, but only in 27 cities and regions, some of which had already recorded larger increases in the past and are now developing weaker. Compared to the previous quarter, condominium prices fell by 0.3 percent in real terms, single-family homes by 1.3 percent and apartment buildings by one percent.

“The rise in prices for condominiums has practically come to a standstill,” says Jonas Zdrzalek, project manager of the Greix Index at the Kiel Institute for the World Economy. “The first year-on-year decline in more than two years marks a turnaround, even if the decline is still small.” Apartments and houses remain advertised longer and the asking prices are adjusted downwards more frequently.

It is estimated that there is a shortage of more than a million apartments in Germany. According to an analysis by the Federal Institute for Building, Urban and Spatial Research (BBSR), around 320,000 new apartments will be needed annually by 2030. The Ifo Institute predicts that the number of completions will be less than 200,000 in 2027 and 2028. Housing construction in Germany has been stalling for years because interest rates and construction costs have risen significantly.