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Rents in Germany predicted to rise ‘much more than wages’

Tenants in Germany are facing tough years ahead, according to the German Tenants Association on Tuesday.

Published: 23 May 2023 14:07 CEST

Residential buildings in the

Residential buildings in the "Mitte Altona" residential quarter in Hamburg. Photo: picture alliance/dpa | Christian Charisius

Speaking to the newspapers of the Funke Mediengruppe, the president of the German Tenants Association, Lukas Siebenkotten, said that he expects rents in Germany to continue to rise significantly and the number of overburdened households to increase over the next few years.

If the current trend in rising rents continues, he said that the number of households spending 40 percent or more of their income on rent will “drastically” increase to over five million in the coming years, he said.

He anticipates that the average gross ‘cold’ rent (without ancillary costs) per square metre in existing properties will reach €10 in the near future. According to the most recent available statistics, the average was €8.70 per square metre in 2022.

READ ALSO: Why Germany is seeing the ‘worst housing shortage in 20 years’

Siebenkotten also warned that all possible legal means will be exploited by landlords in the coming years to increase rents, and predicted that rents will rise “much more than wages”.

Government widely misses housing construction target

Figures from the Federal Statistical Office show that the coalition government is far from achieving its housing construction target to build 400,000 new homes annually.

Although more homes were completed last year despite rising interest and material costs compared to 2021, only 295,300 homes were built in total, an increase of just 0.6 percent or 1,900 more than the previous year, according to the Federal Statistical Office.

READ ALSO: EXPLAINED: How rents are changing in Germany’s five biggest cities

Siebenkotten said that the lack of new homes being built is affecting those who need them most urgently.

He warned of “social upheaval” and accused the government of not yet recognising the “social explosives” in this growing problem. He called for more financial support to keep housing affordable and for private investors to be encouraged to invest in social housing.

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How high interest rates are hampering homeowners' dreams in Germany

Valeriy Shevchenko felt like he made the purchase of his lifetime when he beat a queue of prospective buyers to secure a two-bedroom apartment in one of Berlin’s most popular districts.

Two years on, the 33-year-old’s housing dreams have come crashing down after the developer of his new home, Project Immobilien, went bankrupt.

Hit by a sudden jump in interest rates and raw material costs, twice as many developers have filed for insolvency over the last year than during the previous 12 months.

Like hundreds of homeowners-to-be across the country, Shevchenko found construction of his new home suddenly halted, as workers cleared out of the site where the concrete skeleton of the building stands with no windows.

READ ALSO: Germany sees record drop in property prices

“From the middle of August, the construction was frozen. The cabinets for the workers here, the crane in the middle, everything moved away,” said Shevchenko at the site, shellshocked by the setback.

With such scenes multiplying across the country, Chancellor Olaf Scholz’s government on Monday offered a new package of measures to help ease the pressure on builders and homebuyers.

They include a pledge to not toughen up energy standards that could prove costly for developers, while extending mortgage help to families and financing for renovation.

The construction sector voiced satisfaction with the package, with Tim-Oliver Müller, president of German building lobby group HDB, saying that the measures were “more comprehensive than expected”.

‘All my savings’

For years, record low interest rates and strong demand had spurred new projects and investment in Germany’s property market.

But a sharp rise in consumer prices as a consequence of Russia’s invasion of Ukraine has forced the European Central Bank to aggressively raise interest rates to curb inflation, drastically pushing up mortgage costs and in turn bringing down property prices as well as profit margins of building projects.

Builders are also suffering from higher raw material costs, a problem that had already begun during the pandemic but which has been accentuated by the Ukraine war.

A construction worker works on the new construction of an apartment building in the new development area of Hanover-Kronsrode. Photo: picture alliance/dpa | Demy Becker

“Investors no longer know how to make certain projects profitable,” said Müller.

In a sign of the crisis, developer giant Vonovia recently decided to put 60,000 projects on hold.

One in five property companies has reported cancelling building projects in August, while 11.9 percent face financing difficulties, according to a recent survey by economic research institute Ifo, which described the figures as unprecedented in 30 years.

READ ALSO: Why does Germany keep missing its house-building targets?

Many of the halted projects are also well advanced, pushing buyers into dire financial straits.

In Berlin, investors of the Project Immobilien’s construction had already paid half of what is due.

“I’m not a rich person. My money is the fruit of my labour,” said Shevchenko, who had already paid up €250,000 for the apartment he bought for half a million euros.

Valeriy Shevchenko of Russia poses in front of the site of the unfinished “Malmoerstrasse 28” residential housing project on September 18th, 2023. Photo: JOHN MACDOUGALL / AFP

With no insurance purchased by the building company or the future homeowners, there is no financial protection against the sudden bankruptcy.

Their only hope now is to find someone else to take over the construction, or to finish it themselves.

“I never thought that something like that could happen in Germany,” said Marina Prakharchuk, 39, with tears in her eyes.

The Belarusian had paid up €175,000 for her 45-metre square apartment.

“All my savings are in there,” said the employee of a logistics company.

Housing shortage

Beyond the investors left roofless by insolvent developers, the property crisis risks spiralling into a giant social crisis as the knock-on effects from the building slowdown crash into the rental market.

Scholz’s government had promised to build 400,000 homes a year to alleviate an endemic housing shortage made worse by burgeoning demand from an inflow of refugees and foreign workers.

But building permits have nose-dived 25 percent between January and June compared to a year ago.

READ ALSO: EXPLAINED: What is Germany doing to solve its housing crisis?

Experts believe the sector will struggle to even hit 250,000 in new build approvals this year, while next year bodes no better with a forecast of under 200,000.

With fewer new housing stock coming on the market, rents are rising unabated, further eroding households’ purchasing power.

“More affordable housing must be built in Germany so that young families and those who are looking for apartments can have a good chance of finding one,” said Scholz, after the crisis talks.

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